While remaking a ‘sunsetting’ class order, Australia’s corporate watchdog ASIC has doubled the amount that retail investors can participate in share purchase plans.
In the last week, ASIC announced it has remade the relief in Class Order [CO 09/425], which was due to expire on 1 October.
The new ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547 provides ASX-listed issuers of shares and interests under purchase plans with relief from the requirement to prepare a prospectus or product disclosure statement if certain conditions are met.
In addition, the participation limit for each registered holder in a 12-month period has been increased from $15,000 to $30,000.
ASIC commissioner John Price said the increase in the purchase plan limit will “help ‘mum and dad’ investors participate in discounted fundraisings, and further supports the efficient functioning of capital markets”.
Corporate advisory firm Bridge Street Capital Partners declared its support of the move, with executive director Alex Sundich telling Small Caps it “gives small investors a much fairer go”.
Share purchase plans
A share purchase plan (SPP) is a plan for the offer to existing investors of shares by an ASX-listed corporation.
These types of placements enable the issuing company to raise capital cheaply and quickly and are intended to give small shareholders the same opportunities as big institutions in capital raisings – that is, a discount to the current market price.
Under ASIC’s class order, a company does not need to provide a prospectus if offering existing investors shares up to a limit of $30,000 in any 12-month period.
However, the shareholder would need to weigh up the benefit of the discounted share price with the disadvantage and risk of not having full prospectus disclosure.
Mr Sundich described the previous $15,000 participation limit as “a bit stingy” and said doubling the limit to $30,000 means the small punters can gain a bigger share of the discounted stock.
“I think it is a good policy move for ASIC to make because it basically restores a bit of fairness to the system,” he said.
Mr Sundich said he believed $30,000 was an adequate and reasonable limit to ensure retail investors’ protection.
“They’ve got to balance the other issue, which is SPPs are not done under a prospectus. There has to be some limit, otherwise … unscrupulous companies could raise money without a prospectus then it all goes horribly wrong,” he said.
“For most retail investors/non-708s [those who are not sophisticated, professional or experienced investors classified under Section 708 of the Corporations Act], $30,000 is a reasonable slug of money,” Mr Sundich added.
The end of rights issues?
Mr Sundich said another implication of ASIC’s change is that the traditional rights issue or entitlement offering will probably “die”.
“At $30,000 for an SPP, it’s going to satisfy most people’s appetite on the retail side … why go through all the pain and drama and rigmarole of a rights issue to satisfy all your retail punters when they’re all going to be satisfied with a larger SPP,” he said.
Mr Sundich said this would be good for the corporate issuer because right issues tend to be expensive and take longer.
“The placement of an SPP usually gets things out of the way much quicker and now lets everyone participate up to $30,000 … Rights issues are really hard to do so I think they’ll go the way of the dinosaur over time,” he said.
The relief was remade following ASIC’s consultation with the public. Under the Legislation Act 2003, all class orders are repealed automatically or ‘sunset’ after a specified period (usually 10 years), unless ASIC takes action to preserve them.
This ensures that legislative instruments are kept up-to-date and only remain in force while they are fit-for-purpose and relevant.