Current prices below the Placement issue price are certainly providing a buying opportunity to those who say the company should have offered the placement deal to all shareholders. The issue of the attaching option is subject to shareholder approval and IMO has very little chance of being approved at the upcoming AGM (I've detailed my reasons below).
The cleansing prospectus released to the asx on the 18th clearly says shareholder approval is required as does the Appendix 2A released to the asx on the same date.
I've pasted excerpts from these 2 documents below.
Under ASX listing rule 7.1 companies can issue up to 15% of their SOI in any one year and under Listing rule 7.1a they can issue a further 10% if shareholder approval is given (we gave them that approval last AGM). As the options & the shares are under the 15 + 10% issue limit, it would on 1st glance appear approval is not required. However
Another listing rule you don’t hear of very often is that the placement issue price can be no less than 75% (25% discount) from the previous 15 day VWAP for issues under rule 7.1a (which is the extra 10% rule). They also go on to say that convertible shares such as options are to be counted as what they convert into (in our case 1:1 shares).
Using a very conservative 2 cent pricing for the options the 15 day VWAP would have needed to be below 6.6 cents (6.6 x 75% = 5c), the lowest we got to in that period was around 8 cents, so they clearly do not satisfy that 75% rule. 69.5m shares (or options) are being issued under the 10% rule - they cannot be issued without shareholder approval because the 7c share and free option are more than 75% below the 15 day VWAP. Note those shares have already been issued so this 7.1a rule comes into play if they want to issue the bulk of the options. The shares by themselves satisfy the 75% rule, but NOT if an attaching 1:1 option worth a minimum 2c is issued. This is why the company has said shareholder approval is required.
I’ve given links below to some guidance documents the asx has put out regarding this listing rule, search on “75%” or “VWAP” or “apples with apples” to find the relevant parts.
https://www.asx.com.au/documents/public-consultations/asx-consultation-listing-rule-7.1a.PDF
https://www.asx.com.au/documents/rules/gn21_chapter_7_restrictions.pdf
IMO the current sell down to 6c was because many thought the sophs would be able to sell down to about 5c and still make a profit (due to the option).IMO it is very unlikely shareholders will vote for this. Luckily Shanghai Jason didn’t participate and as our largest holder would be unlikely to vote for it. They have a Board seat so will be on top of the ramifications - they would not want to be diluted by the options. In fact I doubt the company wants them issued (except those staff that participated). This issue gives an extra 10% dilution so the only people it benefits are the Placement participants. And if they are top 20 holders, they’ll need to weigh up the 10% dilution to their holding vs the value of the free options. We just need to make sure we vote at the AGM.
Note the sophs are advised by their brokers, unlikely for them to sell down much below 7c because they know the chances of the options being issued are slim. Most of this sell down was done before the sophs would have had the shares in their account - so was not them. If they were already shareholders they may have sold some existing shares on day 1 or 2 above 7c similar to what Chuk did. This will however create a bit of a wall above 7c as these sophs try to turn a profit.
