SEPTEMBER 2008

IN THIS ISSUE

Please Select an Article to Read

• Australian Law Reform Commission’s Privacy Report – Health Update
• Special Commission of Inquiry into NSW Public Hospitals releases its First Report
• Pharmacists and Franchising
• Accessing funds in the current market environment
• Aged Care Update
• Amendments to the NSW Medical Practice Act introduce compulsory reporting of doctors for sexual misconduct, substance abuse and incompetent clinical practice
• Case note: Peer evidence as to competent medical practice
• Proposed changes to general requirements for labelling of medicines
• Windfall for Medical Insurers in Medical Malpractice Cases
• Protecting Root Cause Analysis in NSW private health facilities
• Case Note: Court Of Appeal reversal on Domestic Assistance Threshold under Civil Liability Act
• New procedures for Medical Negligence Claims in the NSW Supreme Court
• IVF Donors to lose anonymity under new legislation in New South Wales

 

Accessing funds in the current market environment

The health sector has not been immune to the bearish stock market this calendar year. The share market continues to be volatile, making equity fund raising more difficult and uncertain. For some, their share price has declined to a level where equity funding is perceived as too expensive. However, debt funding is not easily available either, with banks having tightened their lending criteria. In such conditions, some have considered underwritten rights issues, dividend reinvestment plans or alternative funding, such as mezzanine finance or convertible notes.

Recent and proposed changes in the law are designed to make the equity fundraising process more efficient. This may reduce the time and cost of completing transactions.

Rights issue now possible without a prospectus

A rights issue offers existing shareholders a right to subscribe for new securities. Since the right is granted to existing shareholders, companies may prefer this form of equity funding particularly when they perceive their share price as “low”, because their existing shareholders are given the opportunity to benefit from the “low” issue price. Last year, the law was changed to allow qualifying listed companies to conduct a rights issue without a prospectus. This may shorten the preparation time and reduce the overall cost of conducting a rights issue. Listed companies now commonly issue a letter of offer setting out the terms of the rights issue, together with a “cleansing statement”, which confirms their compliance with the continuous disclosure obligations without exemption.

Proposed changes to permit listed companies to raise a larger percentage of capital without specific shareholder approval

In its current form, ASX Listing Rule 7.1 prevents a listed entity from issuing or agreeing to issue more than 15% extra capital within a 12 month period without the prior approval of shareholders specific to that capital raising. The ASX proposes to amend Listing Rule 7.1 to allow companies with a market capitalisation of less than $100 million to obtain a yearly general shareholder mandate at their AGM to issue up to 25% extra capital within 12 months of the AGM.

The need for companies to convene a shareholders’ meeting to seek specific approval to issue more than 15% extra capital is a time consuming and often costly process. In particular, it restricts the ability of smaller listed entities to move quickly on a deal, placing them at a competitive disadvantage to unlisted entities that do not need specific shareholder approval and larger organisations who will be able to raise larger amounts of money under the 15% cap without the need for the approval of their shareholders.

We understand that the ASX is currently waiting for ASIC’s feedback on the proposal. HWL Ebsworth will keep you informed of any developments.

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HWL Ebsworth has extensive experience in advising companies regarding their capital raising strategies and their obligations under the ASX Listing Rules and the Corporations Act. 

Written by Grant Hummel, Partner