Australia: IPO update: Regulators finalise changes to listing and disclosure requirements

For entities relying on the 'profit test', there is an increase to the minimum consolidated profit from continuing operations requirement to $500,000 in the 12 months prior to admission (up from $400,000)

For entities relying on the 'assets test', there are increases to the:

• net tangible assets (NTA) threshold to $4 million (up from $3 million)
• market capitalisation threshold to $15 million (up from $10 million).

Any entity seeking admission relying on the 'assets test' will need at least $1.5 million in working capital after allowing for the first full financial year's budgeted administration costs and the cost of acquiring any assets referred to in the disclosure document (to the extent that those costs will be met out of working capital).

Entities seeking admission in reliance on the assets test must provide audited accounts for:

• the last 2 full financial years, and if the entity is more than 6 months and 75 days into the new financial year, audited accounts for the last half-year
• the last 2 full financial years for any 'significant' entity or business acquired by the entity in the 12 months prior to listing or at listing. Additionally, if that significant entity or business is more than 6 months and 75 days into the new financial year, audited accounts for the last half-year. This new requirement will particularly apply to backdoor listings.

Guidance Note 1 will be updated to provide guidance on the meaning of 'significant' for these purposes. An entity or business will generally be considered 'significant' if at the time of listing it will account for 25% or more of any of the applicant's:

• consolidated assets
• consolidated total equity interests
• consolidated annual revenue
• in the case of a mining exploration entity, oil and gas exploration entity or other entity that is not earning material revenue from operations, consolidated annual expenditure, consolidated EBITDA or consolidated annual profit before tax.

ASX will, however, retain a discretion to accept less than 2 financial years of accounts but will only do so in circumstances where:

• the entity has been operating for less than 2 financial years
• the entity has undergone such a major and transformative change during its most recent financial year that the accounts for the previous financial year would not provide meaningful information to investors.

ASX has introduced a new listing rule requiring an entity to have a 20% minimum 'free float' on listing.

'Free float' is the percentage of the entity's quoted securities which are not subject to escrow (either voluntary or ASX-imposed) and which are held by 'non-affiliated' security holders.

This requirement confirms ASX's existing practice (relying on its general power to impose conditions on listing).

The minimum spread requirements have been simplified to require a minimum of 300 security holders each holding securities valued at least $2,000.

ASX proposes to update the Introduction to the ASX Listing Rules and Guidance Note 1 to reinforce its discretion as to admission and quotation decisions and provide guidance, including examples on:

• when ASX may exercise its discretion not to admit an entity to the official list
• where an applicant may be considered to not have a structure and operations appropriate for a listed entity.

ASX has specifically noted that it may exercise its discretion not to admit an entity to the official list despite the applicant meeting, or being expected to meet, the requirements for listing and quotation.

ASIC expects that the prospectus will, other than in specific circumstances (see immediately below), contain 2.5 - 3 years of audited historical financial information regardless of the corporate form in which the business was carried out in the past or whether the business was subject to a historical financial reporting requirement (eg because it was a small proprietary company or a foreign company that was not required to prepare audited financial statements).

2.5 - 3 years of audited historical financial information will also be required for any significant businesses acquired in the 12 months before lodgement or proposed to be acquired using funds raised from the IPO. For consistency, ASIC has adopted ASX's definition of 'significant'.

ASIC has clarified that there may be circumstances where the disclosure of historical financial information for the past 2.5 - 3 years would include information that is either irrelevant or unreasonable for investors to expect. In these cases, certain historical financial disclosure will not be required.

For example, ASIC considers it would not be relevant to disclose where:

• an entity's main business has undergone a major change
• the entity is a vehicle for a backdoor listing and is effectively a shell without material assets or liabilities.

Further, ASIC considers it would not be reasonable to disclose where:

• the entity acquired a business before the IPO, and has already consolidated the acquisition for a substantial part of its disclosed financial history
• the entity is planning a roll-up listing (ie many immaterial businesses without audited financial statements in the same sector).

RG 228 provides additional examples of where it would not be reasonable to disclose historical financial information.

ASIC may treat financial information as not sufficiently reliable where an audit or review opinion included in a prospectus has a qualification or modification which indicates that the opinion provides limited independent assurance for investors (eg where an auditor's report includes a disclaimer of opinion indicating that financial records of the core business of the company were not available).

RG 228 specifies that an entity should use the guidance in Appendix B of Australian Accounting Standard AASB3 Business Combinations and interpretations to determine whether it has acquired a business or collection of assets.

Where the assets acquired by an entity are in substance a business, the entity should generally disclose historical income statements.

Where the existing business has not changed substantially and has an acceptable audit history, a prospectus will be considered by ASIC to be current if it includes the most recent:

• half-year audited or reviewed financial statements (where the prospectus is lodged less than three months after year end)
• full-year audited financial statements (where the prospectus is lodged with ASIC less than 75 days after half-year end).

In rare circumstances, where the business has changed fundamentally since the last balance date in the prospectus, ASIC requires more up to date financial statements to be prepared, audited and included in the prospectus.

ASIC has clarified that where historical trading is disclosed cash flow statements are required to be included.