As the Tel Aviv Stock Exchange announces a new strategic plan for battling the downward trend in the number of companies listed on it, and at the same time there is renewed talk of a plan to set up an additional stock exchange in Israel, the band of Israeli companies traded on the Australian Stock Exchange continues to grow.
Since the first pioneer Israeli company was floated in Australia - Audio Pixels, which raised A$ 32.5 million in 2011 at an after money valuation of A$ 158 million, another 10 Israeli companies have joined it, and several more are expected to swell the ranks by the end of 2017.
Up to now, most of the Israeli companies have entered the Australian capital market by the back door, that is, via a reverse merger into an existing stock market shell company, rather than via a regular IPO. The most recent flotation of an Israeli company in Australia, however, that of eSense-Lab, which is in the medical cannabis business, took place in February this year in the format of an IPO, and three more Israeli companies are currently in line to raise capital in Australia.
World's ninth largest stock exchange
The Australian Stock Exchange (ASX), located in Sydney, is ranked tenth in size in the world, with a large number of stocks and high liquidity. In terms of the market caps of the companies traded on it, the ASX is ninth in the world, and companies making IPOs raised A$ 29 billion in the period 2014-2016. In that period, 359 new companies were listed, and in total some 2,200 companies are traded on the exchange.
The ASX invests effort in encouraging Israeli companies to make offerings and become listed on it, and another delegation of ASX officials is currently in Israel after a similar delegation visited just two months ago.
On Tuesday, a conference on flotations in Australia organized by law firm Goldfarb Seligman & Co. and accounting firm BDO Ziv Haft took place in Tel Aviv. The conference was held in collaboration with the ASX, the Israel-Australia Chamber of Commerce, investment house Otsana Capital, and insurance agency Howden Israel.
"What distinguishes the ASX from other stock exchanges around the world is that all companies traded on our exchange are subject to the same high standard of disclosure and corporate governance requirements, irrespective of the size of the company, from the smallest to the largest, and that's important, because it gives investors security. Investors can approach our market with complete confidence," says Eddie Grieve, head of Listings and Issuer Services at the ASX, in an interview with "Globes".
"This is important for the companies, because as soon as a company is on a lower status trading list, it basically limits itself in terms of the investment it can obtain, as most investment institutions cannot invest in such a company, whereas in Australia, since every company is on a single list, there is no such investment limitation. This also enables companies to grow at a very early stage, and they can join our indices much earlier than on other markets."
Why are you going to such lengths to attract Israeli companies to Australia?
Grieve: "Our market has a long history of support for young companies with high growth potential, and that was proven in our ability to raise capital for the Australian mining industry. Recently this capability has expanded to other sectors, mainly technology, biotechnology, medical technology and so on. We succeeded in that respect at the local level, and we discovered that there are companies in other countries that because of the size of their economies - and Israel is a good example of this - have to think on a global scale from the start. They have excellent technology, they may have a robust venture capital market, but they are limited when it comes to public capital markets, so they have to look to other markets than can provide them with public capital.
"Everyone knows that Israel has superb technology and innovation, and that it thinks globally from day one. There are wonderful companies here looking for a public market, and we believe that we can provide them with that."
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Do you require a minimum valuation for a company that wants to raise capital?
"That's a good question. According to our rules, a fairly small company can list for trading, and part of the reason for that is that our rules have traditionally been adapted for mining and exploration companies, or second-tier mining companies. Therefore, the rule is that it is possible to list for trading with a market cap of fifteen million Australian dollars. It's possible, but if a company wants to attract a varied investment community - retail, institutional, international, and so on - it will probably have to be a larger company.
"We think that the reasonable level for a company is a market cap of around 50 million dollars and upwards. We warn companies against listing too early, and we often recommend companies to wait a little and perhaps carry out a pre-IPO round in Australia, preferably with reputable investors, who will help them in the IPO process later on."
Does a company have to have a controlling shareholder or a controlling interest in order to make an offering
"We have no requirements for a controlling shareholder's minimum holding, and if a company's shares are wide dispersed, a controlling shareholder could have a holding of 20-30%. We have a disclosure requirement: when a shareholder reaches a 5% holding, he must disclose that he is a shareholder, and then changes must also be reported. Another regulation states that if a single shareholder acquires a stake of over 20%, he must either obtain the approval of the other shareholders or publish a proper offer to purchase."
What about limits on executive pay?
"There are no restrictions whatsoever on pay and compensation for managers, but there are disclosure requirements. Companies must report the salaries of senior managers in their annual financial statements. We have an additional requirement, which is that compensation packages for managers must be approved by the shareholders annually, and if there are three no votes, half the executive management must resign and there is a new election for the board."
What is the tax rate for investors in Australia?
"Our corporate tax rate is 30%, and the rate for individuals is 47%, but obviously, different tax brackets are involved; in other words, taxation is progressive. We have a system in which when a company posts profits, it pays tax, and it can distribute the rest as dividends. For example, we're trying to eliminate double taxation of profits."
"Investors are better off in most cases"
Grieve gave a lecture at a seminar in Tel Aviv entitled, "Opportunities for Raising Capital and Financing in Australia." Also lecturing there at the conference was BDO Ziv Haft Israel chairman and CEO Danny Margalit, who has been an advisor in a large proportion of the offerings by Israeli companies in Australia in the past 18 months, and Goldfarb Seligman senior partner Adv. Gabriel Hake.
Hake says, "In general, the success of issues is measured in the long term, and is reflected not just in the share price, but also in the volume of trading, and perhaps most importantly, in the company meeting the forecasts and plans described in the company's reports to the investors. When we look at the Israeli companies that have made offerings in Australia, it can be said that in the vast majority of offerings, the investors have profited from their investment, and there is a respectable level of trading in the shares that is significantly higher than the volume of trading in those companies that can be seen on other stock exchanges."
What is attractive about the ASX?
Hake: "We have also found the ASX to be a suitable playing field for company still in the development stage or just beginning to make sales, including technology companies. The ASX is one of the world's largest trading theaters in both volume of trading and market cap. It works in a comfortable and flexible regulatory environment, it is open to small-scale IPOs amounting to A$5-10 million, it serves as a gateway for penetration of markets in Asia, for products of the companies making offerings, costs of raising capital and maintenance as a public companies are reasonable, and there is a large range of stock exchange shells - some with cash in the bank - looking to absorb new businesses."
Is regulation more flexible than in Israel?
"In Australia, regulation doesn't affect a company's management. The regulator publishes guidelines for proper corporate governance, and makes sure that public companies operate in accordance with principles of transparency, but beyond that, the shareholders are the ones who dictate the company's policy, for better or worse."
Three more companies about to be listed
There are currently 11 Israeli companies listed on the ASX, and three more are about to join them: Mobilicom, which sets up essential corporate communications networks; G Medical, which develops software solutions for medical apps on smartphones and medical devices (e-Health and m-Health); and CyberGym, which provides training and instruction for employees in protecting an enterprise's critical systems, mainly at infrastructure, financial, and energy companies. Mobilicom raised A$7.5 million at a company value of A$43.7 million, after money, and trading in the company share is slated to begin on Monday at A$0.20 per share. G Medical is about to raise A$10 million as a company value of A$45-50 million, while CyberGym will try to raise A$4-7 million at a company value of tens of millions of Australian dollars. The most recent Israeli company to hold an IPO on the ASX was medical cannabis company eSense-Lab, which offered shares at $0.20 a share, raising A$3.5 million. eSense-Lab's share then jumped over 100% to A$0.55, and has since fallen to A$0.39. Another Israeli company benefiting from the general Australian economic boom is Emefcy, which first issued shares in December 2015, and has since increased its value several times over. The company took advantage of the surge to make a secondary offering in July 2016, raising A$33 million, after the company share price leaped 250% since entering the ASX through a merger in to a stock exchange shell, at a company value of A$35 million (and a $13.8 million injection into the company treasury).
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"In the past two years, the Australian capital market has been in a process of separation from investments in minerals and commodities, on which it was based. There is a switch in government incentives to other sectors, such as clean-tech, high tech, biomed, and so forth," says BDO Israel partner and head of startup sector, technology, and global cluster Lior Shahar. "At the macro level, companies entering a stock exchange shell or holding an IPO in Australia are not committed to activity there, but we see that after their offering, some of them are establishing business in Asia and Australia, and I'm not sure that that would have happened without the offering," Shahar explains. "There are quite a few Israeli companies listed in the US, Europe, and London, but Australia is now starting to grab an important place in raising funding by Israel companies outside Israel
"Emefcy is a good example of how it is possible to enter the market with a relatively small sum, after investors learn about the company. If it succeeds, then a secondary offering can sometimes be held in less than a year, and more capital can be raised at a higher company value," says Otsana Capital Israel CEO Eran Gilboa. In his position, Gilboa advises and accompanies Israeli companies that have made offerings there over the past year. "The Australian capital market is now more and more aimed at medium and large-sized companies," Gilboa says. "These do not have to be companies with revenues; they can be in the development stage, but they have to be at the sales threshold, meaning that some of their expenses are for marketing and distribution, not just R&D. Not seed-stage companies but companies at the more advanced stages. They have made a change in Australia in the past six months, because before that, they also allowed smaller and younger companies to raise money. We welcome this development."
In your opinion, how many Israeli companies will there be in Australia by the end of the year?
Gilboa: "In my opinion, there will be at least five more Israeli companies in Australia, but they have to be much more mature. In the recent offerings, we sense that the Australian regulator is examining the companies' business and what stage they have reached more deeply than in the past. They are looking mainly at two things: to understand that the potential market for the business is big enough, and to understand what stage the technology has reached. The company's innovation threshold has to be very high."
How many calls do you get from Israeli companies?
Shahar: "We're getting a lot of queries. Every week, we get dozens of presentations and requests by Israeli companies interested in an offering in Australia, and we select the best and most advanced of them."
Will the next financing rounds be mainly through the back door?
"In my opinion, yes, that's the direction, but if a good stock exchange shell free of any debt and with money in the bank, we may go for it. The company is seeking an IPO, however, and as an investment bank, we also prefer an IPO."
Gilboa: "There are many advantages in a front door offering, mainly from the tax perspective. Furthermore, entering a stock exchange through an IPO, rather than through a stock exchange shell, means that investors look at the company differently. It also saves costs, and timetables are shorter, but every case has to be decided on its merits. We examine the company and its environment, adjust expectations with the company's management, and devise a structure that is comfortable for everyone. If it's not a win-win situation for everyone, it won't work. You also have to make sure that the Australian capital market will support the company price after the offering."
Published by Globes [online], Israel Business News - www.globes-online.com - on April 30, 2017
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