Resources and Energy IPO Guide FAQs

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock, for the first time. With this process comes many questions, including cost, length of time, company eligibility criteria and underwriting. Partner, Michael Hansel has compiled an IPO Guide tailored to the Resources and Energy sector. The Guide examines everything you need to know about IPOs, including the most frequently asked questions shown below. 

Frequently asked questions 

What is an IPO or public offering?

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 exchange - such as the ASX. The listing process generally involves the offering of securities to the public in order to raise capital. This capital raising is facilitated through an offer document such as a prospectus.

How much does it cost to list?

Advisor fees

In broad terms, IPO costs range between 5-10% of the amount raised. Underwriting fees range between 4-7% of the amount raised. Additionally, there are several ways to structure professional advisor and underwriting fees to mitigate any downside risk of the float not proceeding and to incentivise a successful IPO. Most advisors will consider discounted rates (if the IPO does not proceed), fixed fees based on certain agreed scoping parameters, incentive payments on success listing or a hybrid of these structures.

Regulatory fees

• ASIC fees – ASIC charges a $3,206 fee to lodge a prospectus.
• ASX In-Principle Application fees – ASX charges a fixed fee of $5,000 (plus GST) for providing in-principle advice in advance of or connection with, an application for admission to the official list. This fee is deductible from the initial listing fee when the company lists on the ASX. 
• ASX Listing fees – At the time of listing, the company will be required to pay an initial listing fee and a pro-rata annual fee for the remainder of the financial year. In subsequent financial years, an annual fee will apply. Fees are calculated on the value of the securities that are quoted. Fees also apply if the company raises additional capital following the IPO. 

For guidance, from 30 June 2022, the approximate initial and annual fees (for companies of various sizes) are as follows:

Notes:
1. Calculation is based on a prescribed formula based on the value of securities for which quotation is sought. 
2. Annual fees are pro-rated for the first fiscal year of listing. 

How long will an IPO take?

From launch to listing on the ASX, an IPO can take anywhere between three to six months depending on the structure of the capital raising, how float ready the company in question is, and market conditions. Generally, an IPO can be carried out in three months if the company is float ready, has sufficient executive and board engagement throughout the float process and is raising capital in conducive market conditions. Practical suggestions on how to make a company IPO ready (reducing the IPO timeline) are available in the full version of this guide.

As part of the scope of engagement as legal advisors to the IPO, HopgoodGanim Lawyers would prepare, circulate and monitor a timeline which provides an overview of the various workstreams and associated timelines for a capital raising and subsequent ASX listing.

Is my company eligible to list on ASX?

The minimum admission criteria is as follows:

• minimum 300 non-affiliated investors at AUD$2,000 investment per share holder; 
• a free float of 20%; and 
• a company that satisfies either: Profit test – AUD$1 million aggregated profit from continuing operations over the past three years plus AUD$500,000 consolidated profit from continuing operations over the last 12 months or; Asset test – AUD$4 million net tangible assets or AUD$15 million market capitalisation. 

What is an underwriter?

In an IPO, an underwriter serves as an intermediary between the company and investors. The underwriter assists the company to consider issues, such as the amount of money to be raised and the valuation and type of securities to be issued.

Commonly, in the underwriting agreement, the underwriter will agree to a firm commitment in which they assume the risk of buying the entire inventory of stock issues in the IPO and sell to the public at the IPO price.

Who will I need to engage to undertake an IPO?

To undertake an IPO, you will need to engage legal counsel in each jurisdiction the company operates in, an investigating accountant to review and audit your financial accounts, an expert to evaluate your industry landscape or independent resource expert (if required), and an underwriter (if required).

What is escrow?

Shares or securities held in escrow, or ‘restricted securities’ are securities which are subject to a restriction agreement and trading holding lock for a prescribed period (Restriction Period) as specified by the ASX. The security holder is prohibited from transferring, granting an option or security interest over the securities for the duration of the Restriction Period.

Will ASX impose any escrow restrictions on my shares?

ASX specifies the categories of securities that ordinarily are subject to ASX’s escrow requirements by reference to the circumstances in which they were issued, that is:

• the type of party to whom they were issued (related party, promoter, seed capitalist, vendor or professional advisor or consultant); 
• when they were issued (before, in connecting with, or after listing); and 
• for what consideration (cash sale of classified assets, services rendered, an issue under an employee incentive scheme or some other type of consideration).

The full guide has more information on ASX eligibility requirements and provides some case study examples of how and when ASX imposes restrictions on securities.