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    ASX Listing Rules Changes - Discussion Paper Raises Eyebrows on Both Sides of the Tasman

    Author: Phillips Fox       

    The proposed amendments to the Australian Stock Exchange (ASX) Listing Rules relating to 'foreign exempt companies', not only increase the size thresholds for admission to the main board of the Exchange (as an ASX
    Foreign Exempt Listing) but also apply these thresholds to all companies (including existing foreign exempt companies ASX) regardless of where they have their primary listing or in which country they are domiciled.

    This affects all the New Zealand dual listed companies who, since 1996, have had the benefit of a provision allowing companies listed on the NZSE to be admitted to the ASX without meeting the size criteria that would normally apply.

    The much awaited discussion paper on the proposed amendment has recently been released. The paper begins uncontroversally by setting out the aim of the ASX Foreign Exempt category that is, according to the ASX "to give Australian investors access to a wider and more global range of securities". The policy underlying the Foreign Exempt category is, according to the ASX, that where a company is listed on the ASX and on a foreign exchange, it is unreasonable to impose the cost of compliance with all the rules of each market on which securities are traded in circumstances where:

  • the home market is reputable

  • the entity is of sufficient size and international calibre to justify inclusion in an Australian market facility designed to simplify access by Australians to a range of international securities.


    • Having established the need for "size and international calibre" the ASX proceed to justify the proposed raising of the thresholds on two related grounds.

    Justification for amendments
    The first ground is that benefits from a dual listing on two exchanges only accrue to the entity and to its investors if the entity is genuinely trans-national in character and widely recognised as such. The first question to consider is whether the ASX is in fact the appropriate body to rule on whether a particular company is genuinely trans-national in character. Also, as the ASX clearly considers relevant New Zealand companies as not "genuinely trans-national in character", the ASX should clearly warn those companies against seeking full ASX listing status. However, the ASX says "it will work with those entities" to ensure the process of conversion is as seamless and streamlined as possible and goes on to offer a discount initial fee for a full listing. The question of why such a listing offers benefits to the New Zealand companies and their shareholders where as admission as a Foreign Exempt company does not, is, perhaps unsurprisingly, left unanswered.

    The second ground for the amendment is that by increasing the threshold, the ASX considers that it is effectively restoring the category to its original province and intent - provision of an efficient and cost-effective alternative for Australian investors to access the securities of foreign entities of international stature. There are no reasons given as to why companies that were considered to be sufficient stature in 1996 are, a mere 7 years later, of insufficient size. Have companies got bigger? Perhaps so, but it could equally be said that in the knowledge economy relatively smaller more dynamic companies offer as good or better returns for investors. In addition, while the relevant New Zealand businesses may be small in international terms, they are reasonably significant for Australian investors seeking to develop an
    Australasian aspect to their portfolios.

    Despite featuring heavily in the letter from the New Zealand Minister of Commerce, Paul Swain, to the ASX, the paper is silent on the close economic relationship between Australia and New Zealand culminating in the signing of the CER agreement and more recently the Memorandum of Understanding (MOU) relating to co-ordination of business laws. The MOU states that:
    Both Governments are aware that existing laws and regulatory practices relating to business within each economy may impede the development of trans-tasman business activity. Through the development of increased coordination and dialogue, both parties will endeavour to minimise such impediments. 

    While the ASX is a listed company (and obviously not bound by the MOU), it nevertheless seems unusual that the discussion paper makes no reference whatsoever to this, or other moves, by both the Australian and New Zealand Governments to make it easier to raise capital and operate on both sides of the Tasman. It also seems ironic that the amendments by the ASX come at the time when New Zealand is taking significant steps to harmonise its securities law with that of Australia, in the form of the Securites Markets and Institutions Bill.

    Other Issues
    Other points of note in the paper include:
  • the rule change is intended to take effect on 1 June 2002, while exempt entities will have until 1 July 2002 to satisfy the ASX that they comply with the new admission requirements - companies which do not meet the revised thresholds and which have not converted to the full ASX Listing category by 1 July 2002 will be automatically removed

  • companies which convert to a full listing will be required to satisfy the ASX that they have complied with the obligation to provide the ASX with information released in the company's home jurisdiction and also submit their constitution for review for compliance with the ASX listing rules

  • an ASX Foreign Exempt company that converts to a full listing before 1 July 2002 is only required to pay 50% of the ASX Listing fee, although if the company converted to Foreign Exempt company status in 1996 at the invitation of the ASX then no initial fee is payable

  • In circumstances where technical compliance with the ASX Listing Rules is not possible due to the requirements of another jurisdiction and the ASX determines that there are no adverse policy implications, the ASX will grant appropriate relief - a guidance note will be published which deals with these circumstances.


    • Our view
    While the amendment obviously has commercial advantages for the ASX, our view is that it goes against the tide of economic and legal reforms that are making it easier for business to operate on a trans-Tasman basis. Such reforms benefit both New Zealand and Australia.

    We think that companies listed on the NZSE should continue to be excluded from the size thresholds imposed on companies from other nations. Mark Burger, an expert in securities law in our Melbourne Office was asked to comment on the proposed amendments. He said, in his view: "Both New Zealand and Australia benefit from reducing barriers to trans-Tasman business. The amendments as currently proposed are contrary to this principle".

    Submissions on the paper close on Friday 15 March 2002 and we note that even if the ASX does not alter its position, the Minister responsible for the Securities Markets in Australia has the power to veto the proposed amendment under the Corporations Act. While anything is possible and submissions should be made, the accepted view amongst those advising dual listed companies appears to be that a Ministerial veto is unlikely to occur and the amendments will come into effect.

    This is a general summary only and should not be taken as a substitute for specific advice.

    For further information please contact Mark Williamson:
    mark.williamson@phillipsfox.com

    Web site: Phillips Fox

    February, 2002