MSY buyer suspended by ASX to check deal is cool

Lanka Graphite, the mining company that plans to buy IT retailer MSY, has been suspended from the Australian Securities Exchange.

The suspension isn’t a black mark, and Lanka Graphite anticipated it.

So why the suspension?

As the Exchange (ASX) pointed out in its market announcement (pdf), the suspension was made under rule 11.1.3 (pdf), which stipulates that companies undertaking a change of activity can, at the ASX’s discretion, be forced to jump over the same regulatory hurdles as a new entrant to the ASX.

Lanka Graphite anticipated this might happen in its announcement of the proposed deal, which it said would be subject to passing re-listing requirements.

As this ASX guidance note (pdf) explains, the ASX has the power to impose this requirement to make sure that entities aren’t making back-door share market listings. Such listings see a dormant listed company acquire a private company to take it public even though the acquired company would not be able to list by itself.

The ASX suspension therefore isn’t a sign that the Exchange worries something is afoot. Rather it shows that Lanka Graphite got it right when it listed this hurdle as one of the things needed to complete its buy of MSY.