Australian IPO Review 2022: Key themes

2022 in review

After a record-breaking 2021, the Australian IPO market slowed significantly in 2022. There were less than half as many IPOs compared to 2021, and the volume of funds raised tumbled even more dramatically, from over $13 billion in 2021 to just over $1 billion in 2022. The IPOs that got off the ground were (a lot) smaller (the largest by market capitalisation was The Lottery Corporation Limited at a market capitalisation of over $10 billion (though no capital was raised) and the largest by capital raised was Chrysos Corporation Limited, which raised just over $180 million), and there were fewer of them!

Australian IPO activity was heavily impacted by global political conditions, rising inflation and interest rates, and consequent valuation uncertainty, as well as by the performance of some of last year’s IPOs, which eroded investor confidence.

Understandably, many companies which had been considering an IPO took a conservative approach in 2022 – waiting for the IPO window to reopen and for greater stability and visibility around valuations.

Despite the softening, more IPOs came to market than in 2019 and 2020, signalling that many issuers felt able to manage ‘ordinary’ economic cyclicality, as compared to the extraordinary conditions brought about by the Covid-19 pandemic.

Outlook for 2023

We had optimistic expectations for 2022, which were not borne out in practice, so are cautious about the outlook for 2023. We are seeing tentative signs of increased confidence and hope that, in the absence of further serious deterioration in economic conditions (which, of course, is a possibility), 2023 will at least equal and perhaps exceed 2022 as an IPO year.

See 2023: Predictions for further details.

Continued strength of old economy IPOs

Consistent with 2021, listings in the materials sector comprised the majority of IPOs in 2022 and, for the first time in several years, the majority of total capital raised. Gold and lithium mining stood out as areas where both sellers and investors were willing to deal, despite uncertainty elsewhere in the market.

Consistently, the next largest sector by volume was the closely related energy sector, dominated by the listing of natural gas exploration company Conrad Asia Energy Ltd. The S&P/ASX 200 Energy Index experienced growth of more than 30% in the 2022 calendar year, reflecting strengthening prices for both gas and coal (although it remains to be seen how these operators, and their investors, react to recent regulatory interventions).

Increasing demand for gold, battery technology and component minerals, the ongoing focus on and impact of the energy transition, as well as the energy supply impacts of the Russia-Ukraine war in 2022 and recent regulatory changes, will continue to impact these sectors.

ASIC’s continued focus on forecasts, greenwashing and product design and distribution obligations

As discussed in the 2020 and 2021 editions of The Australian IPO Review, ASIC has been focused in recent years on forecasts in disclosure documents.

In 2022, ASIC focused on forecasts with earnings ranges, and disclosure documents that included ‘total contract value’ metrics (both of which are likely to involve forward- looking statements). In particular, ASIC noted in its June 2022 Corporate Finance Update that it would be likely to have concerns with forecasts involving earnings ranges, on the basis that the inclusion of a range may call into question the existence of a ‘reasonable basis’ for the forecast. ASIC also noted that entities that wish to disclose ‘total contract value’ metrics (including assumptions about future contract extensions) should take care to ensure that there are sufficient qualitative disclosures to explain the basis of those metrics, and also that there is a ‘reasonable basis’ for assumptions made.

The 2020 and 2021 editions of The Australian IPO Review also highlighted ASIC’s focus on greenwashing, and the impact of the introduction and coming into effect of product design and distribution obligations (DDO). In 2022, ASIC remained focused on, and began to take regulatory enforcement action in, these areas.

ASIC took its first action against an ASX listed entity for alleged greenwashing in October 2022 and continued to take enforcement action in this area in the latter part of 2022. It also issued its first interim stop orders in July 2022 in relation to perceived deficiencies in targetmarket determinations (TMDs) under the DDO regime. ASIC issued 21 such interim stop orders in 2022, and commenced its first civil penalty proceeding in relation to a TMD in December 2022.

We expect that forecasts, greenwashing and DDO will remain key priorities for ASIC in 2023.

See Regulatory developments for further details.

Potential amendments to the ASX Listing Rules

On 5 April 2022, ASX announced a proposal to amend certain aspects of the ASX Listing Rules. These amendments were due to take effect on 1 December 2022. However, following a public consultation period, the amendments have not yet taken effect. The proposal included amendments to the rules regulating admission of an entity to the official list and quotation of its securities – including changes to more narrowly frame the spread test for admission (by specifying that only shareholders resident in Australia or another jurisdiction acceptable to ASX will count towards the 300 non-affiliated shareholder threshold), and to remove the requirement for listing applicants under the assets test to provide IPO prospectus commitments where they have a track record of profitability or revenue acceptable to ASX.

See Regulatory developments for further details.