Doing an IPO in Australia MICHAEL HANSEL, PARTNER

What is an IPO? The terms IPO, public offering, listing or floating are, by and large, interchangeable These terms describe the process of transforming a privately owned company into a publicly-owned company whose shares or other securities can be traded on a recognised securities exchange

IPOs in 2012 – 2013 (up to 30 June) The number –140 for the financial year ending 30 June 2013 [99 in 2012 and 41 in 2013] The ‘winners’ and the ‘losers’ Comments on last year –Just 33 were above $US 20 million Comments and expectation on 2013/2014 –Optimistic –Pent-up interest –Potential transactions are in the pipeline

IPOs in 2012 – 2013 (up to 30 June) (cont) Second quarter of 2013 market review –mixed results –three withdrawing applications, nine new floats, 40 percent drop from the same quarter last year –Some substantive deals - proceeds totalled $2,608 million, the second best quarter in the past five years

Improved IPO Landscape Year Amount raised ($m) FloatsWinnersLosersSquare

Star floats – 2012^ (gain percent)

Biggest raising (amount raised $ m)

The pros and cons of listing Benefits –Access to a greater pool of capital –Improved financial condition –A (secondary) market for your organisation’s shares –Increased shareholder value –Improved valuation –Succession Planning –A path to mergers and acquisitions –Higher corporate profile –Alignment of employee interest/management interests –Institutional investment –Reassurance of customers and suppliers

The pros and cons of listing (cont) Disadvantages –Loss of control –Dealing with shareholders' expectations –Restrictions on selling shares –Enhanced Disclosure –Limits on management's freedom to act –Initial and ongoing expenses –Continuous disclosure

Listing Requirements (ASX) Min market capitalisation 1 Net Tangible Assets: Calculated as the total assets of a company, minus any intangible assets such as goodwill, patents, and trademarks, minus all liabilities and the par value of preferred stock. Also called net asset value and book value. 2 Market Capitalisation is the value of the company expressed as the told number of shares on issue multiplied by the issue price. Profit or Asset Test Profit Test A$1million net profit over past 3 years + A$400,000 net profit over last 12 months Asset Test $3 million Net Tangible Assets 1 ; or A$10 million market capitalisation 2

Listing Requirements (ASX) (cont) Min number of shareholding 1 Number of shareholders required to hold a parcel of shares with a value of at least $2,000 2 Free float (% of securities held by non – related parties of the company) Number of Shareholders 1 Free Float 2 300Not less than 50% 350Not less than 25% 400No minimum free float

Listing Requirements(ASX)(cont Working capital requirements following listing –At least $1.5 million –Or if it is not, it would be at least $1.5 million if the entity’s budgeted revenue for the first full financial year that ends after listing was included in the working capital

Listing Requirements(ASX)(cont) Relevant escrow considerations –The ASX may restrict the transfer of shares known as “escrow” issued before the listing so that they cannot be sold for a period of up to two years after listing

Listing Requirements (ASX)(cont) What is a Prospectus? –A document issued by a company setting out the terms of its equity issue –Must be lodged with both the Australian Securities and Investments Commission (ASIC) and ASX What information is required in a prospectus? –To help make an informed assessment of: the assets of and liabilities, financial position, profits and losses and prospects of the corporation; the rights attaching to the shares of the corporation; and the merits of participating in the Company and the extent of the risks involved in the participation.

Listing Requirements (ASX)(cont) Recent ASIC approach –Focus on clear, concise and effective disclosure: plain language, active voice, short sentences, avoid repetition, explain complex information, including technical terms –Key information about the issuer and offer in a balanced way –More focus on key risks, specific rather than general risks and balance of benefits and risks –Explaining business model- more disclosure about directors and key managers

The Listing Process Step 1 Pre-IPO Preparation Appoint and consult with advisers: Underwriters, Brokers, Corporate advisers, Accountants, Lawyers & Sponsor Step 2 Talk to Securities Exchange Preliminary stages – Security Exchange provides guidance on general IPO process Advanced stages – guidance on Listing Rules of the Security Exchange Step 3 Prospectus preparation & due diligence Detailed review of Company carried out by: Company Management & Board, Advisers, Underwriters, Brokers & Sponsor Step 4 Lodge Prospectus & apply to list Prospectus lodged with ASIC Listing application must be lodged with Securities Exchange within 7 days of Prospectus lodgement with ASIC Step 5 IPO Offer Period Average 6 to 8 weeks Up to 3 months under Corps Act Step 6 Receive approval to list from Securities Exchange Securities Exchange Letter of Approval sent to Company Subject to conditions, including completion of capital raising Step 7 Admission & Trading Company satisfied all conditions set out in Securities Exchange approval letter & is admitted Official quotation to occur approximately 2 days after admission

ASX or APX? ASX (Australian Securities Exchange) –A licensed operator of markets and clearing and settlement facilities in Australia –Top 10 measured by market capitalisation APX (Asia Pacific Stock Exchange) –APX is a securities exchange with a market licence granted by ASIC, aiming to trade in Australian dollars & RMB –APX is in the process of developing a Chinese RMB board, will assist: APX listing companies to raise capital using Chinese RMB; and Chinese investors to trade in RMB via online trading platform for APX listed companies.

ASX or APX? (cont) Why Sponsors are required by APX for its Listees? –A listee must include certain documents signed by an APX Sponsor –APX will liaise between the potential listee and the Sponsor What Sponsors do? –During the first two years after IPO, the listee must engage a sponsor to advise it in relation to its obligations under the APX Listing Rules

Criteria of ASX vs. APX CriteriaASXAPX Size requirementsNet tangible assets at the time of admission of at least A$3million or a market capitalisation post-IPO of at least A$10million A market capitalisation of at least A$2m Spread requirements (number of shareholders) 300 holders who each hold shares with a value of at least A$2000; or 400 shareholders and at least 25% of the company’s shares are held by unrelated entities At least 50 holders who each hold shares with a value of at least AU$2000 and at least 25% of securities holders are unrelated Information requirementsProspectus or information memorandum Working capital requirementsat least $1.5millionMin $300,000 Directors requirementsto satisfy ASX that each director or proposed director is of good fame and character: a.a Police/CrimTrac criminal history check(If not an Australian resident, equivalent criminal history and bankruptcy checks to be supplied for each country in which the director has resided over the past 10 years); b.an Insolvency and Trustee Service Australia bankruptcy check; a statutory declaration; c.not the subject of any criminal or civil proceedings; d.Not the subject of any disciplinary action etc. is of good fame and character; must have the appropriate expertise and experience. APX: declaration and undertakings Sponsor requirementNone requiredRequired to appoint a sponsor Profit testAggregated gross profit for the last 3 years no less than A$1million or the consolidated gross profit for the last 12 months must be more than A$400,000 Nil Operating History3 years3 years financial statements with the last within 6 months; term can be shortened if credible case is put forward to APX.

Thank you MICHAEL HANSEL, PARTNER Phone