ASIC released Consultation Paper 103: Review of Share Purchase Plan Threshold on 18 December 2008 and is in the process of reviewing comments and feedback from stakeholders regarding the proposed changes.
The ASIC Proposal
Share purchase plans (SPPs) are plans for the offer of new issues of shares to existing investors of an entity listed on the ASX. Usually a disclosure document, such as a prospectus or product disclosure statement, must be given to prospective shareholders. ASIC Class Order 02/831 currently offers relief from companies having to put together a disclosure document where there is an issue of $5,000 or less made to existing shareholders within a 12 month period.
ASIC proposes to triple the threshold for relief so that it will apply to issues of $15,000 or less made to existing shareholders within a 12 month period. ASIC proposes that companies will lodge a ‘cleansing notice’ instead of a traditional disclosure document.
One of the drivers for the proposed increase is to provide companies with quicker and lower-cost capital raising in lieu of debt financing which is increasingly difficult to obtain in the current economic climate.
Incentives to Existing Shareholders to Further Invest
This proposal would offer existing shareholders the opportunity to acquire shares up to the value of $15,000 each at a discount to the current market price. Moreover, shareholders will save on brokerage fees and stamp duty.
The Cleansing Notice Requirement
The disclosure relief is currently restricted to securities listed on the ASX. Under the Corporations Act 2001 listed entities must continuously disclose all price-sensitive information to the market, allowing shareholders to access current information about a company. So even without a disclosure document, potential investors may still have access to information which will help them decide whether or not to invest.
The cleansing notice steps in to bridge a gap that would exist if the only obligation on companies was to comply with the continuous disclosure regime. The cleansing notice ensures that companies disclose information that has not been released to the market via continuous disclosure but is nonetheless relevant to an investor’s decision. This includes information exempted from disclosure under ASX Listing Rule 3.1A, and information that investors and professional advisors would reasonably require for the purpose of making an informed decision on investment.
The benefits of a cleansing notice are that it provides an issuer with a low cost, and less time-consuming alternative to the traditional disclosure documents such as a prospectus or product disclosure statement.
What does this Proposal mean?
If adopted the proposal will mean:
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Promotion of capital raising at a time in which debt financing is increasingly difficult to obtain
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Lower cost capital raising (savings on broker commissions and disclosure documents not required)
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Provides incentive for existing shareholders to further invest
Are there any Limitations?
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There is a $15,000 cap on offers.
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There remains a ceiling on the number of shares that can be issued pursuant to SPPs claiming this relief. Total share issues must not exceed 30% of the total fully paid ordinary shares that have already been issued by the company.
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The issue price of shares must be less than the market price, but at least 80% of the average market price for securities in that class.
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The written offer document must disclose certain details relating to the calculation of the issue price, the relationship between issue price and market price, and there must be a warning stating that the current market price is subject to change between the date of offer and the date of issue.
After reviewing submissions, ASIC may decide to proceed with the proposal and amend relevant class orders and Regulatory Guide 125: Small offers of shares to existing shareholders by listed companies – share purchase plans.
