Regional Express Holdings hit by ASIC over disclosure failures

The regional airline has won clearance to compete on the lucrative Sydney-Melbourne route, but plans to raise up to $200m have hit turbulence.

Rex aircraft on the tarmac at Cairns. Picture: BRENDAN RADKE

Plans by regional airline service Regional Express Holdings, Rex, to potentially raise $200 million to kickstart domestic operations hit turbulence after the corporate regulator restricted the airline from issuing a prospectus and using exemptions for reduced disclosure in fundraising documents until just before Christmas 2021.

However, the halt on fresh equity raisings is unlikely to hamstring the regional airlines’ plans to build up its infrastructure and pick up more domestic flights with Rex gaining a $150m lifeline earlier this month from Asian investor PAGAC Regulus Holding.

Meanwhile, as Rex’s shares were placed in a trading halt on Wednesday following the wrist-slap from the Australian Securities and Investments Commission over its failure to disclose to the market it was considering commencing domestic operations and raising capital, it got some good news in the form of industry approval to operate the highly profitable Melbourne-Sydney route.

Rex said that it has been issued a High Capacity Air Operator’s Certificate by the Civil Aviation Safety Authority. This means that Rex is now approved for services using the Boeing 737-800 on its existing network where appropriate. It also means it has the green light to commence domestic operations between Sydney and Melbourne from Match 1 and thereafter to other major cities.

Rex immediately jumped into the competitive route and launched its sales with a special promotion of 100,000 tickets offered at $79 on its nine daily return flights between Sydney and Melbourne.

Shares in Rex rose 15c, or 7.98 per cent, to $2.03 before the trading halt was called. Rex is expected to make a statement to the market regarding the ASIC action on Thursday.

The details and information on the potential equity raising was first released publicly to a journalist on May 11 by REX deputy chairman John Sharp, rather than being disclosed to the market.

“ASIC considers the ability to use a reduced-disclosure prospectus a privilege that is dependent on compliance with other aspects of the law, including that companies meet their ongoing disclosure obligations,” the corporate regulator said in a statement on Wednesday.

“Where a company fails to comply with its disclosure obligations in a full, accurate and timely manner, ASIC will intervene to ensure that investors are protected.”

ASIC said its investigation into REX’s conduct is ongoing. REX has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision. In May REX deputy chairman Mr Sharp gave an interview to Australian Financial Review journalist Tony Boyd. Mr Sharp revealed that REX was considering commencing domestic operations.

The following day, an article appeared in the newspaper referring to REX’s plans to invest $200m to start new capital city services. Following the article, REX shares were placed in a trading halt by the Australian Securities Exchange.

REX later released an announcement on the ASX platform titled “REX Responds to Recent News Article” where it stated it was considering the feasibility of commencing domestic airline operations and following.

“Rex discloses that it is has been approached by several parties interested in providing the equity needed for Rex to start domestic operations in Australia. The preliminary estimate of equity required is in the vicinity of $200m dollars and the structure of equity raising is yet to be determined,” the ASX statement at the time said.

Following the announcement, REX opened on ASX at $1.26, rising as high as $1.31 and closed at $1.19 up 32 per cent from the previous closing price of 90c.

Under section 713 of the Corporations Act, a listed company can offer securities using a reduced content prospectus containing information relating only to the particular offer itself. Sections 708A and 708AA of the Act outline further circumstances in which a company does not need to provide any disclosure for the sale offer of its securities.

ASIC has the power to prevent a company from relying on the reduced disclosure rules under these sections if the company breaches its continuous disclosure or financial reporting obligations. The restriction on Rex is until December 14, 2021.