There have been a plethora of reverse listings on the Australian Stock Exchange this year and with the majority of deals being struck between near-defunct mining shells and small-cap tech companies, the Australian Securities & Investments Commission says it’s watching closely.
ASIC commissioner John Price said the rise of backdoor listings is reminiscent of the tech boom in the late 1990s and subsequent bust in the early 2000s which caused a number of regulatory issues, in particularly around disclosures, The Australian reports.
Many tech companies backing onto the ASX say it’s a cheaper way to list – you don’t have to go through all the ASX regulatory hurdles, and the onus of the deal lands with the listed vehicle’s shareholders.
“Where there is change of business activity, there needs to be good discussion of what the new business model is going to be, what the new business plan is going to be. Some of the disclosure we’re seeing around this, unfortunately, is not up to scratch,” Price said.
“If a company is changing activities in this way, they should also be disclosing if they’re going to need any additional funding in the short term, how they’re going to get that funding and what that means to investors.”
The return of the backdoor listing is also causing the watchdog concern over how independent experts’ reports are created.
“We have taken action where we have had concerns around independence in the past and we are in some cases reviewing samples of expert working papers to make sure the expert is not being unduly influenced,” Price said.
And while it is a sign of Australia’s economic transition, with junior mining and exploration stocks falling out of favour in the last 12 months and tech considered a little overvalued, it isn’t a good sign, AirTree Ventures boss Daniel Petre told Business Insider.
“You go and back some tech company into a mining stock, you allow them to list without the normal rigour, you’re going to blow up a whole lot of retail investors’ money. I think it’s ridiculous and highly inappropriate, it’s a silly idea,” he said.
“Hopefully it doesn’t get any traction because all that will do is destroy any credibility the technology sector might have in this country.
“It’s not 1999 again but there’s no question technology values are broadly peaking and you see that now with this reverse listing stuff.”
Petre said if you have a good business or idea you should be able to raise money from more sophisticated investors, who know what they’re doing, rather than heading down the reverse takeover path.
“There is lots of money chasing good businesses,” he said.
“You look at the rounds that have closed on good businesses and investors are tripping over themselves trying to get into that business.”
Petre said if a startup fails to raise money from VCs who understand high risk, it probably means the founder needs to go back and develop the business model further.
“If you haven’t been able to raise money from sophisticated investors – so people who know what they’re doing – you’re answer now is to back into a mining stock? Doesn’t that tell you something about the maturity of the business model you’re trying to grow?,” he said.
“That that is the only way you can raise money? I don’t think it holds up to any scrutiny and I think it’s unfortunate.”
“If you’re going to list on the ASX you should have a proper listing.”