How could the ASX attract more new listings? Here are 3 possibilities

How could the ASX attract more new listings? That is a question many local investors are pondering, and no doubt the ASX executives are too. Of course, their paycheque are in play, but the problem is one for the broader Australian investment ecosystem.

In September 2024, the total number of companies fell below 2000 for the first time in 20 years. Although the decline is only 4% in 10 years, what would worry many is that for every new company that listed (67), 2 delisted (142) either because of being taken over or delisting voluntarily. Other metrics show that Australia is falling behind global markets – 15 years ago Australian companies held 2% of the MSCI World Index, now just 1.2%.

What would also be concerning is that many of the entries have been speculative mining or technology stocks, while exiting have been blue-chip companies like Sydney Airport, Newcrest, Suncorp and Altium. True, Guzman y Gomez and Chemist Warehouse have joined, although the latter only joined through a reverse take-over rather than the conventional route.

There have been many reasons suggested as to why the ASX is declining and what it could do to reverse the trend. We would like to offer these suggestions.

3 ways how could the ASX attract more new listings

1. Permit dual-class share structures

Dual class share structures are a type of corporate structure in which two separate classes of stock are issued to shareholders. The two classes of stock entitled to different voting rights, dividend payments, and even additional privileges.

Generally speaking, one class (Class A) offers more voting power than the other (Class B), increasing the control that the founder or primary shareholder can exercise over decisions made by the company.

The purpose of these structures is to allow founders and core investors continued control over their holdings. America long-allowed this, and Singapore and Hong Kong have followed suite in the last decade. The eye-opener for Hong Kong was missing out on the (first) listing of Alibaba.

Of course, these structures must exist pre-IPO – they cannot retrospectively strip away rights from existing shareholders. We would imagine this would be part of a framework here. It would also not be unreasonable to limit it to high-growth potential companies and this is the case in Hong Kong and Singapore.

Atlassian bosses Scott Farquhar and Mike Cannon-Brookes both cited the ASX’s opposition to dual-class structured companies as why they went to list on the NASDAQ rather than the ASX. Maybe they would not have listed here anyway, but perhaps other companies wouldn’t cross the ASX off its list of markets to IPO on so early in the process.

2. Lesser sticks

Now this is a vague term we are using to say there should be less regulations, particularly those unique to the ASX. In some respects, the ASX has less regulation than other markets, most notably only having to report half-yearly if you’re profitable as opposed to the US where all companies must report quarterly.

But there are other reforms that could be made such as those suggested in the Lord Hill report, done in the UK to investigate its own markets decline. These include slashing the proportion of shares that must be offered to outside investors in some cases – for multi billion dollar companies, only offering 10% of your shares could still be a lot. Another was not needing to hold votes before approving large mergers or takeovers, or perhaps just going back to a simple majority needing to approve rather than a ‘super majority’.

We think the new climate reporting requirements should be…kept as they are now, in that they should only apply to larger companies. ‘large companies’ are defined as a company with at least two of the following three characteristics: at least $500m in consolidated revenue, at least $1bn in gross assets or at least 500 employees.

3. More carrots

Some regulations could be crafted to provide a carrot for companies. Perhaps some companies could get preferential tax treatment for listing in Australia and having operations here – maybe the lower 25% rate irrespective of how much revenue it earns.

The market could also look into preferential treatments for institutional investors who hold shares in escrow for longer periods (perhaps at least 5 years). We’re just throwing these around as suggestions. These were put forward by Korean regulators in the last 12 months to get companies to list there. We think these are just some of the measures that should be considered.

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