There are several ways public companies can raise capital in Australia. Each option carries different legal, market and commercial considerations, so it is important for listed entities to be deliberate in choosing the right structure for their raise. In Australia, the capital markets are governed primarily by the Corporations Act 2001 (Cth) and the ASX Listing Rules, both of which shape what is permissible and how transactions can be executed.
This article explores the key capital raising options available to ASX-listed companies and the factors that typically inform which path a company takes.
Placements: Institutional and Sophisticated Investors
Placements are one of the most commonly used capital raising tools for ASX-listed companies, particularly when timing is critical.
For listed companies, one of the key regulatory advantages is the ability to rely on the “cleansing notice” regime under section 708A(5) of the Corporations Act 2001 (Cth). This allows a company to issue shares without a prospectus, provided that it has been listed for at least 12 months and has met its continuous disclosure obligations during that time. To rely on this exemption, the company must lodge a cleansing notice with the ASX immediately after the placement, confirming that it has complied with its disclosure obligations and disclosing any material information not already in the market.
The cleansing notice effectively “cleanses” the new securities, enabling them to be freely tradable on the ASX without a prospectus. This mechanism is central to the speed and efficiency of placements, particularly when working within narrow trading windows or capitalising on market momentum.
However, placements are subject to the limits set out in ASX Listing Rule 7.1, which generally restrict a company from issuing more than 15% of its issued capital in any 12-month period without shareholder approval. For smaller listed entities that meet certain eligibility requirements, shareholder approval under Listing Rule 7.1A can increase this capacity to 25%. Careful planning is required to ensure sufficient placement capacity is available or to obtain necessary approvals ahead of time.
One challenge with placements is that they are typically offered to select institutional and sophisticated investors only, excluding retail investors from participation. This can raise concerns about dilution and fairness, particularly in companies with large retail registers. To address this, many companies follow a placement with a Share Purchase Plan (discussed below) that gives retail investors the opportunity to invest on similar terms, preserving goodwill and providing broader access to the raise.
Placements can be underwritten, but typically are not, as they are often executed through a bookbuild process that secures firm commitments from institutional or sophisticated investors before the offer is announced. However, in certain circumstances, such as where the raise is large or market conditions are uncertain, a placement may be underwritten to provide funding certainty. In that case, the underwriter agrees to subscribe for any shortfall in return for a fee and usually plays a role in the allocation process.
Placements continue to be the preferred tool where speed, flexibility, and institutional demand are the priorities. The cleansing notice regime plays a crucial role in enabling this efficiency, but directors must remain mindful of disclosure risks and market fairness, particularly in the context of selective allocations.
Pro-Rata Rights Issue: Existing Shareholders
Rights issues are a traditional form of capital raising that give existing shareholders the right to purchase new shares in proportion to their current holdings. This pro-rata structure is generally viewed as equitable, as it allows shareholders to avoid dilution if they choose to participate. There are two main types: renounceable and non-renounceable.
In a non-renounceable rights issue, shareholders must either take up their entitlement or allow it to lapse. In a renounceable rights issue, shareholders who do not wish to participate can sell their entitlements on the ASX, thereby recovering some value. Renounceable rights issues are more complex and costly to run but are considered fairer and often more attractive investors.
Rights issues are frequently underwritten to provide the company with funding certainty. Underwriters may be required to take up any shortfall in applications, in exchange for a fee and potential upside.
Although rights issues are generally more time-consuming than placements, they can raise significant amounts of capital while reinforcing alignment between the company and its shareholder base. However, poor structuring or pricing can lead to low participation rates or downward pressure on the share price.
Share Purchase Plans: Extending Access to Retail Investors
Share purchase plans (SPPs) are another popular mechanism to include existing shareholders in a raise. An SPP allows shareholders to apply for additional shares, up to a regulatory cap (currently $30,000 per shareholder), without the need for a prospectus. These plans are usually offered at a discount and without brokerage costs, making them attractive to smaller investors.
In an SPP, the company sends eligible shareholders an offer booklet outlining the key terms of the offer. This booklet is not as extensive as a prospectus, but it must still provide sufficient information for shareholders to make an informed investment decision. It typically includes the offer price, application period, maximum investment amount (currently capped at $30,000 per shareholder), use of funds, and instructions for applying. While the regulatory requirements are less onerous than a full disclosure document, companies must ensure the booklet is accurate, clear, and complies with ASIC and ASX guidance.
SPPs are often run in conjunction with placements, where the company completes a placement with institutional investors and then invites retail holders to invest on comparable terms. This is partly driven by fairness, but also serves as a way to top up the amount raised and reduce any perceived dilution of the retail register.
Although SPPs are generally simple to execute, they are subject to ASX and ASIC guidelines, including restrictions on price differentials and the total amount raised. Companies must also monitor compliance with the scale-back mechanisms in the event of oversubscriptions.
Prospectus Offerings: Accessing the Broader Market
Where a company wishes to raise capital from the general public, it must prepare and lodge a full-form prospectus with ASIC. This is the most comprehensive and transparent method of capital raising and is commonly used in initial public offerings (IPOs) or significant secondary capital raisings.
A prospectus must include all information that investors and their professional advisers would reasonably require to make an informed assessment of the offer and the issuing entity. It is subject to detailed content requirements under the Corporations Act 2001 (Cth) and is lodged with ASIC, triggering a statutory exposure period of at least seven days before any offers can be accepted.
The main advantage of a prospectus is that it allows access to the widest possible investor base, including retail and offshore investors. However, the process is time-intensive, more costly, and involves a higher standard of legal and regulatory compliance. For this reason, listed companies often prefer alternative capital raising structures unless a prospectus is legally required or strategically preferred.
Convertible Notes and Hybrid Securities: Bridging Debt and Equity
Convertible securities, such as convertible notes or preference shares, offer a hybrid approach to raising capital. These instruments are typically structured as debt at first instance, with the option to convert into equity on agreed terms. This can be attractive to investors who want downside protection (in the form of interest payments and priority ranking) as well as potential equity upside.
From the company’s perspective, convertible notes can defer dilution, smooth working capital, and align funding with future milestones. However, the structuring can be complex, and companies need to ensure that conversion mechanics, shareholder approvals, and listing rule compliance are all carefully managed.
Convertible issues are often placed with institutional or sophisticated investors, although they may also be listed on the ASX as quoted securities in their own right.
Final Thoughts
Selecting the right capital raising method involves more than a mechanical application of the rules. Directors must consider the company’s immediate funding needs, shareholder dynamics, dilution impacts, and broader market conditions. Equally, they must stay mindful of the regulatory framework.
Companies must also navigate continuous disclosure obligations during a raise, ensuring that the market remains fully informed and that any trading halts or voluntary suspensions are carefully handled.
The method selected can have lasting effects on shareholder sentiment and market performance. Whether opting for a quick placement, a pro-rata issue, or a full retail offer, companies should approach the process with strategic intent, strong governance, and the right legal and financial advice.
Get in touch with our capital raising experts should you require support with your next fundraise on (03) 9481 2000 or info@tauruslawyers.com.au.