By James Rozsa (Partner) & Clare Brown (Senior Associate)
NEED TO KNOW
Australia’s appetite for early-stage capital
Over the last 10 years, ASX has become an attractive alternative market for US biotechnology companies, and more specifically, medical device companies, with the opportunity to raise early-stage
capital in the public markets. Raising comparable public funds in the much larger and competitive US market has tended to be challenging for companies at the development stage, whereas investors on ASX have shown to be more receptive to providing early-stage capital. This risk appetite is a function of our market’s experience with speculative resources stocks, and also the lack of a deep
venture capital financing market in Australia.
No-action letter from SEC
ASX has implemented a number of measures to make ASX a more accessible market for US companies. These measures started back in 2000 when ASX sought, and was granted, a no-action letter from the US Securities and Exchange Commission (SEC) for initial public offerings of non-reporting US companies on ASX that are made in reliance on the safe harbour provisions of Regulation S under the US Securities Act of 1933. The effect of this letter has facilitated so-called “Reg S offerings” in Australia by modifying some of the relevant requirements. The key conditions include excluding US persons from participating in the public offering (rather US persons can participate in the overall offering via a separate private placement), and flagging the securities as Foreign Ownership Restriction (FOR) securities for 12 months so as to inform the market on the prohibition on US persons acquiring the securities.
Common ASX waivers
ASX has also become receptive to granting waivers from certain ASX listing rules requirements which are inconsistent with US laws or practices, or create unfair burdens for US issuers. Waivers are commonly granted to US issuers to:
Prelude to a Nasdaq listing?
If a listing on a major US market, such as the Nasdaq, is a future goal for a US issuer, an existing listing on ASX poses no hindrance to entry into the US markets. HeartWare International, Inc. successfully listed on Nasdaq in early 2009, as did Unilife Corporation in 2010, and Sunshine Heart, Inc. is currently looking to list on the Nasdaq early next year. Each of these companies started
their ‘public life’ on the ASX.
Although foreign companies typically cannot trade their shares electronically on ASX, but must rather issue CHESS Depositary Interests (CDIs) representing the underlying shares – the flexibility of having CDIs trade on ASX can actually assist US issuers to meet the criteria for a listing on Nasdaq. Specifically, Nasdaq has a minimum listing price of US$4.00 per share, however CDIs can trade at an exchange ratio to shares of the issuer’s choosing. For example, Heartware adopted a CDI to share ratio of 35:1 whereas Unilife Corporation adopted a 6:1 ratio. This also means that US issuers can maintain a trading price on ASX that is customary for biotechnology stocks, whilst trading its shares at a higher price on Nasdaq.
Corrs has acted for a number of US issuers, including HeartWare Limited on its original ASXlisting, Peplin Inc on its redomicile to Delaware and ASX-listing, and Sunshine Heart, Inc in its proposed
listing on Nasdaq. Corrs is currently advising several other US issuers considering an Australian IPO and ASX-listing.