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Allen & Overy plays strong role in ASX Covid-19 issuance

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Tony Sparks

Partner

Sydney

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Leemen Mark
Mark Leemen

Partner

Sydney

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08 June 2020

Since the onset of Covid-19, Allen & Overy’s Australian and U.S. securities law equity Capital Markets team has advised on raisings on the Australian Securities Exchange (ASX) totalling approximately AUD3.2 billion. 

The Capital Markets team has been kept busy throughout the recent surge of Covid-19 equity capital raisings on the ASX, which has seen AUD19.5bn raised in the period between 1 March and 22 May 2020.

According to Dealogic, Australia is leading the way in total proceeds raised in secondary issues during the pandemic. The AUD19.5bn raised on the ASX (equating to 1.1% of total ASX market capitalisation) compares to AUD12.6bn on the London Stock Exchange (0.4%), AUD21.8bn on the New York Stock Exchange (0.1%), AUD23.1bn on NASDAQ (0.1%), and AUD5.1bn on the Singapore Stock Exchange (0.1%).

Allen & Overy Partner Tony Sparks commented: “Supported by a favourable Australian regulatory regime, the extraordinary amount of capital raised in recent weeks has been led by market participants who learnt how to execute quickly and effectively during the GFC. Australian regulations provide a supportive environment for Boards that are focused on fairness for shareholders during Covid-19 but also need to raise capital quickly and with certainty. The temporary measures in place provide protections for retail investors, while facilitating greater capacity to access our market”. 

 “Our regulatory environment is world-class and highly regarded internationally for the flexibility it gives issuers to raise capital quickly in times of need. We believe Boards remain best placed to allocate new capital and that any attempt to impose additional constraints would be a retrograde step”, Tony added.

Mark Leemen, Partner, added: “We are not seeing obvious signs of investor fatigue yet. If anything, we see the possibility of a second wave of raisings later in the year, both from companies that have delayed raising until their needs are clearer and some companies seeing opportunities in the post-Covid-19 landscape. The depth and relative concentration of the Australian funds management industry has helped as it did during the GFC. Our large fund managers know the structures and processes and are able to deploy funds quickly into new raisings. This removes some of the risk associated with capital raisings”. 

Factors driving high levels of capital markets activity 

  • The remarkably high volume of proceeds raised in secondary issues on the ASX over the past eight weeks reflects the speed to market, which various overseas capital markets sought to imitate during and after the global financial crisis (GFC). Throughout that crisis, many overseas rights issues failed or left underwriters with significant shortfalls because of the length of statutory timetables. Since then many foreign timetables have been abbreviated but still none mirrors the speed of the Australian market. 
  • Australian regulators have been open to innovation that does not jeopardise regulatory protections – recent developments have balanced capital-raising certainty with equality of opportunity for existing investors. The facilitation of ‘undocumented’ and accelerated offers has allowed offers to be made quickly without delays for non-material disclosure, which reduces risk during market volatility and supports the underwriting (and therefore certainty) of large individual raisings.
  • Australia’s regulatory regime provides ASIC and ASX with broad powers to vary the requirements of the Corporations Act and Listing Rules to respond to market uncertainty and significant need for capital. ASX has provided for a significant increase to the placement size (from 15% to 25% for all issuers). ASIC has granted a range of both class and individual relief to facilitate offers and has redirected regulatory resources to consider and process multiple relief applications on an expedited basis.
  • Australia’s broadly standard approach to wall crossing procedures and contractual confirmations from investors (based on AFMA-approved market terms) has reduced negotiation time and uncertainty.    

Trends in capital raisings throughout Covid-19

  • Unlike in the GFC, raisings have been focused on supporting businesses because of the loss of revenue, rather than over-leverage.
  • Initial emergency raisings by entities that are directly and significantly impacted by the virus have been followed more recently by raisings that are geared towards growth or that anticipate the end of the pandemic.
  • Firms with cross-jurisdictional capability are well placed to advise on large-scale raisings in the current environment, as evidenced in National Storage REIT’s AUD300 million institutional placement and share purchase plan, in which A&O advised JP Morgan and Citi as Australian and U.S. counsel. The placement was conducted in reliance on the ASX’s class waiver relief in relation to placement capacity, with all parties focused on the heightened scrutiny of disclosure in the current climate (particularly in relation to allocation). 

Significant raisings advised on by Allen & Overy throughout Covid-19:

  • Australian counsel to Macquarie on United Malt Group Ltd’s AUD165m institutional placement and share purchase plan. 
  • Auckland International Airport Limited’s NZD1.2bn capital raising, which comprised a fully underwritten NZD1bn institutional placement and a NZD200m SPP (as U.S. counsel). 
  • Credit Corp Group Limited’s AUD150m capital raising (as Australian counsel).
  • Reece Group’s AUD600m fully underwritten placement and accelerated non-renounceable entitlement offer (advising JP Morgan as Australian counsel).
  • Webjet Limited’s AUD346m placement and entitlement offer – the first placement and entitlement offer to utilise ASX’s class waiver relief (as US counsel).
  • oOh! Media Limited’s AUD167m fully underwritten entitlement offer and institutional placement (as US counsel). 

The A&O equity capital markets team also includes Meredith Campion (Partner), Cécile Baume (Counsel) and James Nicholls (Counsel).

 

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