Eligible smaller and mid-size companies will be able to seek a shareholder mandate to permit them to issue up to 25% of their share capital by way of placements over a 12 month period. Issues under the 25% mandate cannot be discounted by more than 25% to the company's 15 trading day VWAP.
To gain the benefit of the 25% mandate, approval needs to be sought at the AGM by special resolution, requiring 75% of shareholders who vote to be in favour. The 25% mandate has a 12 month shelf-life and will therefore need to be refreshed on a yearly basis. We expect that a 25% mandate resolution will become a regular feature of the AGMs of eligible companies.
To be eligible, at the time the AGM is held a company needs to:
- have a market capitalisation of $300 million or less; and
- not be included in the S&P/ASX 300 Index.
ASX recommends companies seeking a 25% mandate provide a draft calculation of market capitalisation when giving their draft AGM notice to ASX for review. There may be some uncertainty for companies dispatching their AGM notices as to whether they will meet the eligibility tests on the date of their AGM, given potential fluctuations in market capitalisation. However, there can be no embarrassment in seeking a 25% mandate which turns out to be unavailable due to the happy circumstance of share price appreciation. Resolutions can be made responsive to this issue through drafting them to be conditional on eligibility.
Most companies will hold their AGMs in November and therefore will have certainty as to their inclusion in the S&P/ASX 300 Index, which is published on the first Friday of March and September.
Specific information requirements apply for the meeting documentation when seeking a 25% mandate, including the risk of dilution to existing shareholders, the company's 25% mandate share allocation policy and the purposes for which 25% mandate shares may be issued. This information needs to be disclosed again with the Appendix 3B announced after the issue of 25% mandate shares. We expect that companies will often publish relatively broad statements on these matters, allowing them flexibility to issue shares to a range of investors and apply the funds raised for a variety of purposes.
As to the limitation on discounting, shares issued under a 25% mandate must not be issued at a price that is less than 75% of the volume weighted average price - or VWAP - of the securities over the 15 trading days on which trades in those securities were recorded immediately before:
- the date on which the issue price of the securities is agreed, or
- the issue date (if the securities are not issued within 5 trading days of the date on which the issue price is agreed).
The VWAP figure and the source of the VWAP data must be disclosed when announcing an issue of shares under a 25% mandate.
Some transactions will need to be carefully structured if the intent is to rely on a 25% mandate. While vanilla financial investor placements will always be executed within 5 trading days of agreeing the issue price, more nuanced corporate-to-corporate share issues may often have longer settlement times. For example, issue of share-based consideration for acquisition of an asset may well be delayed more than 5 trading days from agreeing the issue price.