ASIC Urges Better Conduct from Lead Managers in Mining IPOs


The ASIC report found lead managers and company directors faced numerous conflicts of interest in the IPO process.

6 December 2019 | AtoZMarketsInitial public offerings (IPOs) in Australia’s $300 billion mining sector are largely unregulated and many investors aren’t properly advised of the risks involved, according to a report by the corporate watchdog on Thursday.

Mining IPOs in Australia

Mining IPOs have boomed in Australia in recent years, accounting for 36% of all listings in 2018. It has also accounted for 25% of all companies on the ASX by market capitalization.

But a large number of Aussie miners are small-sized explorers, according to the Australian Securities & Investments Commission (ASIC), which carries greater risks than many investors are made aware of.

Instead, the report found that investors may be lured by misleading and biased promotional materials. Some misleading materials, for example, includes presentations and sponsored content, in the weeks leading up to the float.

While company prospectuses are legally obliged to detail company information, marketing material is often not covered by compliance checks. Additionally, they are filled with confusing jargon, making it hard for investors to make an informed decision, it said.

Broker bias

But the risks of poor advice also develop further up the chain. ASIC also highlighted as a significant concern the prevalence of conflicts of interest. The watchdog said that leads to potential misconduct and unfair outcomes. The reason?

because lead managers may act for both the company and investing clients, hold direct interests in the company, have representatives on the board or provide other ongoing services.

ASIC commissioner John Price said that the mining sector is a key and unique component of Australia’s equity markets. He explained that miners account for more than a quarter of all ASX-listed entities and a third of all IPOs in the last two years.

“Companies and advisers need to conduct themselves in a way that is fair and responsible. Disclosure has limits and over-reliance on disclosure alone can lead to poor investor outcomes and a loss of confidence in the market,” said Price.

ASIC recommendation for lead managers in mining IPOs

The report offers better practice recommendations for companies, directors and lead managers to eliminate, or at least recognize and appropriately manage, conflicts of interest.

  • Investors: These ones should know of the bigger risks involved in mining IPOs
  • Companies, directors and lead managers bring in better practices to help mitigate conflicts of interest
  • Directors: Review all promotional public messages made on behalf of the company during and after the IPO process
  • Compliance checks implemented by companies for all marketing content

Currently, regulation has primarily focused on the company prospectus lodged by companies entering an IPO. Nevertheless, ASIC says it will also focus on the promotional practices that occur in the lead up to its lodgement.

What do you think about the ASIC report on mining and exploration IPOs? Let us know in the comments section below.

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