Requirements eased by ASIC with firms able to make ‘low doc’ offers to investors

Corporate watchdog throws distressed companies a lifeline, helping listed groups raise capital quickly.

A number of companies have suspended trade in their shares in order to assess the impact of the coronavirus pandemic on their businesses and to prepare for a capital raising.

The corporate watchdog has thrown distressed companies a lifeline, helping listed groups raise capital quickly by enabling firms to make some “low doc” offers to investors, even if they don’t meet all the normal requirements.

It came as the sharemarket operator warned of a “disturbing” trend of companies claiming to have “found a cure” for the coronavirus, despite never having conducted business in health or science before.

Traditional funding markets have largely been frozen by the coronavirus pandemic and the government’s attempts to shut down the economy to limit the spread of COVID-19, with equity markets in freefall, hybrid issuance in hibernation amid the volatility, and the corporate bond market roiled by fear of a wave of defaults.

Usually, low doc capital raising are not available if a company has suspended trade on their shares for a total of more than five days in the previous year. Those companies would normally need to prepare a prospectus or apply to the Australian Securities and Investments Commission for relief.

As the economy is crushed by shutdowns and amid uncertainty about the levels of government support, a number of companies have suspended trade in their shares in order to assess the impact of the coronavirus pandemic on their businesses and to prepare for a capital raising.

In a reprieve issued by ASIC on Tuesday, the regulator said low doc placements, rights issues and share purchase plans where a company has been suspended for up to 10 days would be allowed.

ASIC Commissioner John Price said the regulator wanted to give listed groups more fundraising flexibility in unusual circumstances.

“Many will need to seek a trading suspension to understand how COVID-19 will affect them and to put a capital raising in place,” Mr Price said.

“However, the usual rules still apply. Directors need to ensure the capital raising is in the best interests of the company and companies need to make sure they are keeping the market informed via continuous disclosure announcements, even when they are in suspension,” he said.

The sharemarket operator, the Australian Securities Exchange, also issued a raft of guidance for companies dealing with ordinary listing rules in extraordinary times.

It also warned companies not to take advantage of the situation by making unsubstantiated claims about their ability to profit from the COVID-19 crisis.

“Disturbingly, ASX has experienced a significant number of instances recently where listed entities have made announcements with potentially misleading claims around COVID-19,” the ASX said.

Companies will be able to enter back-to-back trading halts which would double the ordinary trading halt period to four days. Picture: AAP

“These include entities that don’t appear to have had any prior meaningful involvement in similar activities lodging announcements claiming: to have found a cure or new treatment for COVID-19; their product kills the COVID-19 virus; or to have developed new forms of test kits for COVID-19.

“It also includes entities claiming to be gearing up to use their manufacturing facilities to manufacture masks, gowns, thermometers, hand sanitisers and other medical necessities in short supply with little or no details.”

It also said it would allow companies to enter back-to-back trading halts which would double the ordinary trading halt period to four days to give companies breathing space to organise capital raisings.

The ASX stressed it does not expect companies to give forward guidance during the period.

“It is important at the outset to state that a listed entity’s continuous disclosure obligations do not extend to predicting the unpredictable,” the ASX said.

It also said if New Zealand-listed companies were using a 30-day extension for the lodgement of disclosure documents they would automatically qualify for the extension if they were dual-listed on the Australian market. It said it had yet to receive any requests from Australian companies that a similar extension was warranted in the local market.