On September 30, the ASX released an updated version of Guidance Note 12 relating to Chapter 11 of the Listing rules – significant changes to activities.

Ordinarily, shares to be issued in conjunction with a back door listing must have an issue price or sale price of at least 20c each.

“Relevantly, ASX will consider a request to not apply this ‘20c rule’ on a back door listing where a full re-compliance under Listing Rule 11.1.3 is required, provided the issue price or sale price for any securities being issued or sold as part of, or in conjunction with the back door listing transaction is not less than 2c each [and this is approved by shareholders]; and the ASX is satisfied that the company’s capital structure after the transaction is appropriate for a listed entity,” Steinepreis Paganin said.

“This is good news and the ASX has recognised that the main policy problem with back door listings has been the requirement to undertake a significant consolidation for small cap entities to boost their value to around 20c, and that this has imposed an impediment and commercial risk to the transaction.

“A 2c minimum price is a reasonable compromise and has been set based on ASX’s view that a price lower than 2c raises concerns of potential volatility and whether the entity’s capital structure at a lesser price is an appropriate structure for a listed entity.”

A company must apply to ASX for this relief in the form of a waiver application or request for in-principle advice. SP is already in the process of preparing applications for various clients.

Perth-based Steinepreis Paganin partner Toby Hicks said the new rule makes more sense for companies already listed who want to restructure or “do something different” in the current capital constrained environment where investors are more risk averse.

It is especially handy for the recent wave of juniors across both the hydrocarbon and hard rock spaces investing and undertaking backdoor transactions into tech vehicles to survive, as they can’t raise any interest in their resources projects.

“If you have a company trading at 1c, in order to meet that previous requirement you’d need to do a 1 for 20 consolidation of your shares, which means your existing shareholders all have their interest in the company crunched on that 1 for 20 basis,” Hicks told Energy News.

“So this new rules means existing shareholders can retain a bigger holding in the company, because consolidating from 1c to 2c is different from going from consolidating from 1c to 20c. And, it then means you can raise your money at a lower price.

“I don’t think there’s a real IPO market at this junior end of the stock market at the moment. All the IPOs are occurring at the top end, like Medibank Private and Spotless [Group Holdings Limited]. There really is no IPO market at the junior end, so this rule helps continue to facilitate trading and transactions at the lower end of the market.”