5 September 2019

ASIC ups limit for Share Purchase Plans in a win-win for investors and corporates

RON CAMERON, SENIOR ADVISER, INVESTOR RELATIONS

Markets regulator, The Australian Securities and Investment Commission (ASIC), has doubled the amount that retail investors can contribute to Share Purchase Plans. The change is the result of ASIC updating the Class Order that defines how ASX listed companies can issue shares, via a SPP, to registered shareholders without the need for prospectus or Product Disclosure Statement.

The previous class order governing SPPs was due to ‘sunset’ on 1 October 2019. Sunsetting is a process, introduced in 2003, whereby ASIC’s Class Orders and legislative Instruments are automatically repealed after 10 years unless they are ‘remade’, which means updated. Sunsetting is designed to make sure ASIC’s rules remain current and are regularly reviewed and updated.     

The previous Class Order governing SPPs has been remade as a legislative Instrument, the new name for Class Orders. 

A key component of the new instrument is the increase in participation limit for each registered holder in a 12-month period from $15,000 to $30,000.

ASIC Commissioner John Price said, ‘We consider that 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.’

Share purchase plans enable the issuing company to raise capital cheaply and quickly and are intended to give small ‘mum and dad’ shareholders the opportunity to invest on the same terms and conditions (e.g. price) as institutions in capital raisings – that is, a discount to the prevailing market price.

In each case, individual shareholders will still need to weigh up any benefit derived from the discounted share price with the disadvantage and risk of not having full prospectus disclosure.

The increased limit will now allow retail shareholders to participate in a more meaningful way and is, in ASIC’s view, an equitable and reasonable limit to ensure retail investors’ protection. 

Could this spell the end of the traditional Entitlement (Rights) Issue?

Whether a boost to the participation limit, to $30,000, will satisfy most retail investors’ appetite in terms of participation in corporate capital raisings, time will tell, but it will certainly put a dent in the traditional Rights Issue as a capital raising tool.

For the corporate issuer it will be a more cost-effective and time-efficient way to raise capital. Logistically Rights Issues take time, are complicated and compliance-heavy, not to mention the added expense.

Logically, an Institutional Placement coupled with a SPP, (or a SPP on its own), on the same price and terms should be sufficient for most corporate issuers’ capital requirements. The quicker time frame for getting a SPP away will also allow for a more efficient use of a company’s available funds and management time. A win-win for all.

The FIRST Advisers experience

Under the $15,000 participation limit our experience, over more than 15 years, of running shareholder engagement campaigns for SPPs suggests that the bulk of retail investor participation is in the $1,000-$5,000 range and equally at the top end of $15,000. The increased limit to $30,000 should have a positive material impact on the amount of funds raised in any SPP as this is clearly a limiting factor.

Engaging investors directly, through a shareholder engagement campaign, also boosts participation by, on average 33.5%, and is now more cost-effective than ever!

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