The ASX’s role in the James Hardie debacle will do nothing for its corporate rehabilitation

ASIC should consider whether ASX’s actions in relation to both James Hardie and any other waivers it has allowed were detrimental to shareholders.

ASIC chair Joe Longo with ASX CEO Helen Lofthouse. Picture: John Feder

The market revolt over the Australian Securities Exchange granting a waiver to James Hardie so it can buy Azek without putting the deeply unpopular deal to a vote shows it’s time for an even closer watch on the watchman.

Over the years following a series of seemingly unrelated mishaps, the ASX’s regulatory powers have been chipped away, with functions such as market supervision handed to the Australian Securities and Investments Commission.

The ASX still retains control of supervising listings - which is where it’s run into trouble with James Hardie - as well as clearing and settlement.

Now the question is whether listings supervision should be the next function ceded to what many people believe would be “more competent hands.”

The James Hardie bungle puts more pressure on ASX boss Helen Lofthouse, who was promoted to the job in 2022 after her predecessor Dominic Stevens stepped down over a failed technology upgrade to its critical CHESS system. Her success in turning the company around is yet to be proven.

Instead, the ASX has continued to kick own goals, such as trying to force listed companies to provide diversity reports, which was killed off by a corporate revolt earlier this year.

This time, short of federal treasurer Jim Chalmers stepping in, and that looks very unlikely given his office has told The Australian it’s a matter for the ASX, the next logical step would be a review of listings supervision by ASIC.

The securities regulator would want to consider whether ASX’s actions in relation to both James Hardie and any other waivers it’s delivered were found to be detrimental to shareholders.

This is where it gets a bit tricky because James Hardie appears to have acted within the law when applying for a waiver, and ASX in turn appears to have acted within the letter of the law when granting it.

James Hardie asked and received a secret waiver to issue 35 per cent of its shares without putting the matter to shareholders so that it could help fund the “friendly” takeover of US rival Azek.

The deal involves a record break fee of $US272m payable to James Hardie, and potentially an even bigger one payable to Azek if it doesn’t complete.

As former ASX chair Maurice Newman told The Australian, the company now takes a legalistic rather than discretionary mindset.

Newman told this newspaper the ASX would be put in a “tricky” position if it blocked the waiver and likely face an appeal, but on the other hand, the ASX should have been just as concerned about James Hardie’s tactics to “avoid giving shareholders a vote.”

So will ASIC step in?

Certainly ASIC and the Reserve Bank of Australia have made no bones about their dissatisfaction with the ASX.

It was less than a month ago that the joint regulators of the ASX threatened to either seize control or impose additional licensing requirements on it because of the ineptitude demonstrated in upgrading technology critical to market operation.

The ASX is basically a technology company that provides trading, clearing and settlement for equities, futures and government bonds. But as pointed out by this paper, the ASX is also a tech company that hasn’t managed its own tech and then failed to own up to its mistakes.

ASIC is suing the ASX over allegations it made misleading market statements about the progress of the CHESS upgrade, and separately, the regulators are currently reviewing whether the current CHESS system is fit for purpose.

Given ASIC is now investigating the December 20 outage, suing ASX, and directing it to undertake a technical review, it could be argued that yet another review is a bridge too far.

On the other hand, it could be argued these problems point to a company that is struggling to match the expectations of market participants and the nation’s shareholders.

As for the James Hardie deal, the ASX still has the opportunity to at least consider allowing Australian shareholders back into the room.

After a $1 trillion bloc of industry super funds and investment managers demanded it reconsider, the ASX responded by alluding to the possibility that it could intervene if James Hardie were to apply for a foreign exempt listing.

James Hardie has a long history of trying to avoid responsibilities. First it was to the victims of its deadly asbestos dust, which led it to the more tax friendly domicile of The Republic of Ireland.

In a twist of fate, it’s that same tricky company structure that has helped it skirt the wrath of shareholders in the Azek takeover because of the time it would take them to fire the board.

Originally published as The ASX’s role in the James Hardie debacle will do nothing for its corporate rehabilitation