ASX float ban may sink ship

It’s an interesting fact that the Australian Securities Exchange is contemplating a crackdown on new floats at the same time as the number of companies listed on the ASX is actually falling!

Listed entities on the ASX dipped slightly to 2,205 in April compared to a year earlier. If anything the IPO pipeline has proved to be quite resilient in the past 12 months as many venture capitalists have brought more companies to the ASX, many with a technological bent.

But now the ASX is finalising a consultation paper which the AFR reveals is designed to protect investors losing their shirts on small tech start-ups either coming onto the boards through IPOs or coming in through the backdoor of a moribund WA mineral explorer.

The move is sure to trigger fierce debate in the tech industry just at a time when the ‘innovation nation’ is starting to gain some traction.

For comparison purposes there have been 105 tech company listings in the past two years and 45 per cent had revenue of less than $1 million.

Here’s what the ASX is looking at: early stage companies with a market value of under $20 million and less than $5 million in net tangible assets will be restricted from listing on the ASX.

The new market capitalisation threshold is double the current $10 million and the net tangible assets test would be raised by $2 million from its current $3 million.

There appears to be some relief on the original revenue figure.

The ASX is also considering a small increase to the profits test from $400,000 in the past year to $500,000 and will require wants companies with three years of trading history or more to present audited accounts for these years. At the moment companies do not need to provide audited financial results.

Under the new rules start-ups that have been trading for less than three years would still be able to list without needing audited accounts, with the permission of the ASX and the corporate watchdog.

The ASX believes that only a few companies will be affected and points out these recommendation are for discussion only, but it has already established a committee to review listing applications to look at hopefuls’ structure, operations and domicile.

The ASX says it want to protect the integrity of the exchange from so-called ‘mickey mouse’ promoters and that the only companies affected would be those that are too small to list and therefore don’t need to access the markets liquidity.

This is sure to be challenged by small entities that have already listed and are making good headway, and those companies who are seeking listing on the ASX to provide liquidity for their shareholders. Many are pointing out that a stock exchange listing is imperative if they want to move into overseas markets to raise extra funding.

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