Placement capacity is counted in shares. Your funding gap is counted in dollars.

Written for chairs, directors and CFOs of ASX-listed entities. If you want to understand your board’s exposure on this issue, contact JR3 Legal.

Most placement capacity problems I see in small caps are not calculation errors. The company secretary knows exactly how many shares the company can issue. The problem is that nobody has asked what those shares will be worth on the day the company actually needs the money – and that day almost always arrives after the share price has fallen.

LR 7.1 lets a listed entity issue up to 15% of its ordinary securities in any rolling twelve months without shareholder approval. Eligible entities – outside the S&P/ASX 300 with a market capitalisation of A$300m or less – can add a further 10% under LR 7.1A if holders approve it at the AGM. Both limits are share counts; the budget is a dollar figure. Thirty million shares of capacity raises A$3m at 10 cents and A$1.5m at 5 cents, and the drilling program has not halved with it.

The three doors, and what each one costs

When capacity runs short of the dollar need, the board is left with three options and none of them is cheap.

The first is a general meeting to approve the issue: a notice reviewed by ASX under LR 15.1 (five business days minimum, longer with a waiver), 28 days’ notice under s 249HA of the Corporations Act 2001 (Cth), registry and mailing costs, and a month in which the market watches a company that has said it needs money wait to be allowed to raise it. The real cost is the discount the lead manager prices in for the delay. And the approval has a shelf life: LR 7.3.4 requires the securities to be issued within three months of the meeting, and ASX’s 2026 Supervision Report lists LR 7.3.4 as the rule for which it refused the most waivers in the period – in one case because the only reason offered for the delay was the company’s convenience.

The second is to sweeten the placement with free-attaching options. Options are equity securities and consume capacity in their own right, so the sweetener eats into the pool it was meant to stretch. The longer cost is the overhang: a tranche of options at, say, 8 cents tells the market where the sellers will be, and that strike becomes the perceived ceiling on the price until the options are exercised or lapse.

The third is a pro rata offer, which does not use LR 7.1 capacity at all (LR 7.2 exception 1) and, because the new shares enlarge the base, actually rebuilds it. Boards often arrive here by default, and then discover it doubles as a fix for something else: a company whose register has thinned below the spread ASX expects under LR 12.4 can use a prospectus-based entitlement offer to rebuild it. Legitimate, but slow, document-heavy and dependent on a spread calculation that moves as the register churns – ASX’s templates help, but it is not a job to start the week the placement launches.

The fix is a table, not a rule

This is a planning problem that surfaces as a Listing Rule problem. The fix is a one-page sensitivity table in the board pack: capacity under LR 7.1 and LR 7.1A in shares, converted to dollars at the current price, at 25% below it and at 50% below it, set against the next twelve months of funding need from the quarterly cash flow report. Refresh it every quarter. If the 50% column does not cover the funding need, the LR 7.1A resolution at the AGM is not optional, and any general meeting should be planned then, not called in a hurry when the price is at its low.

ASX’s first Listed Entity Supervision Report, released in June, says it “intend[s] to conduct targeted reviews of compliance with the placement capacity requirements in Chapter 7” and that listed entities “can expect us to periodically test compliance with these rules on an ongoing basis”. A board that has been running that table will answer the questions in an afternoon.

Julian Rockett is the Principal of JR3 Legal, an ASX specialist corporate law firm and company secretarial practice based in Sydney. He acts as external general counsel and company secretary for ASX-listed entities, primarily in the resources, energy and technology sectors. Contact Julian directly at julian@jr3legal.com.