ASIC recently released its regular half-yearly update on the regulation of corporate finance: Report 589. The regulator has identified the promotion of initial public offerings (IPOs) as a focus area for the second half of calendar 2019.
The regulator’s key concerns regarding IPO promotion are summarised below.
- For “larger” IPOs: ASIC chided issuers and promoters for leaking investor education (sometimes known as pre-IPO research) to the media prior to lodgement of the prospectus. ASIC noted its concern that the media had published information gleaned from research analyst reports on upcoming IPOs, including analyst valuations and forecasts. Commenting that these leaks appeared be aimed at promoting the relevant IPOs, the regulator expressed apprehension that such information may be misleading for retail investors especially in circumstances where the valuations and/or forecasts were not included in the prospectus. ASIC said that they may require issuers caught in these circumstances to publish a retraction of such information.
- For “smaller” IPOs: issuers were reminded not to include potentially misleading information in their advertising and promotional materials. One company that had been required by ASIC to remove misleading statements from their prospectus was later caught publishing those same misleading statements in advertising and promotional material. Had the relevant IPO not been withdrawn, ASIC said that it was prepared to issue an order requiring the company to publish a retraction.
- For “financial services” industry IPOs: ASIC has placed an emphasis on the disclosure of the specific risks encountered within the banking, superannuation and financial services industry. As an example of the kind of scrutiny it would apply to the industry, ASIC highlighted two cases:
- the first, relating to an issuer providing inadequate disclosure of risks associated with a wealth management company’s vertical integration model; and
- the second, relating to a credit provider who withdrew their IPO after discussions with ASIC about its loan agreements. Although not named, this was clearly a reference to Prospa who withdrew its IPO after the regulator expressed significant concerns about unfair contract terms in their business loan contracts.
- For IPOs with “cornerstone investors”: ASIC expressed concern that statements concerning pre-commitment by institutional investors may be influential to retail investors and should be made with care. In ASIC’s view, such statements could be misleading and/or cause market integrity issues. Although no specific case studies were provided by the regulator, ASIC said that issues that it may consider include:
- the nature of the pre-commitment (for example, whether it is binding or a statement of intention, and whether it is conditional and what those conditions are);
- the price at which the institutional investor has made their commitment; and
- where the institutional investor is effectively acting as an underwriter, whether any fees or interest they will receive have been disclosed.
For further information please contact Anand Sundaraj.