ASX Tightening Rules for Prospective IPOs
Over the last 18 to 24 months, the ASX has rejected over 60 companies seeking to list on the exchange. These rejections have come off the back of the recent poor performance of several early-stage and foreign-based companies.
Overall, the ASX’s aim appears to be ensuring that the quality of companies listed on the exchange remains high. In various media announcements and publications, two overarching themes appear to be driving this position:
- The lack of a sound corporate governance framework including the appointment of a suitably qualified and experienced board of directors; and
- Early-stage companies with unclear and/or untested business models.
In our own recent experience, we have seen examples of companies that technically meet all of the ASX Listing Rule requirements but are rejected by the ASX using their discretionary powers for failing to meet the ASX’s internal benchmarks on the above issues.
In order to ensure that companies stand the best chance of being accepted by the ASX, we strongly encourage clients to engage with experienced legal and accounting professionals at least 12 months before an intended IPO.
Set out below are some issues to consider early on in an IPO process:
- What is the likely timetable for the IPO and how will this affect the information requirements for a prospectus?
- When do other key processes and tasks need to commence to ensure that the desired timetable is met?
- Are there any structuring issues that need to be resolved prior to the IPO? Are any shareholder approvals required?
- Who will comprise the board of directors and will there be a sufficient number of directors with relevant ASX listed company experience?
- For entities with foreign operations, what has been the basis of preparation of financial information (i.e. has it been prepared in accordance with Australian Financial Reporting Standards) and has this information be audited by a reputable firm?
- For foreign entities, are there any unique issues that need to be addressed (e.g. for Chinese companies, how will cash be transferred out of the country)?
- Where acquisitions are expected to form part of the IPO structure, what has been the basis of preparation of the financial information of those targets and have they been audited by a reputable firm?
- How long has the business been in operation and what (if any) impacts could this have on pre-IPO shareholders (i.e. will any or all of their shares be subject to any escrow restrictions)?
Advisers with IPO experience will be able to provide insight into the ASX’s and ASIC’s latest focus areas and identify any shortfalls within the company which may delay, prevent or result in significant additional costs to an IPO process.
Like most things, planning is essential to any successful IPO. Early planning combined with engagement with professional advisers will also ensure that the company presents well to the ASX in initial discussions. As they say, first impressions count.