When an Australian company decides to raise capital—whether through an IPO or a secondary offering—one document sits at the heart of the process: the underwriting agreement. In 2025, amid evolving regulations and market volatility, these agreements play a crucial role in giving confidence to both issuers and investors. But what exactly is an underwriting agreement, and how do recent policy shifts affect their structure and significance?
What is an Underwriting Agreement?
An underwriting agreement is a legally binding contract between a company issuing securities (shares, bonds, etc.) and an underwriter—typically an investment bank or syndicate. The underwriter commits to purchasing all or part of the new securities and reselling them to investors. This arrangement ensures the issuer receives the intended capital, even if investor demand falls short.
- Firm Commitment: The underwriter guarantees to buy all securities, assuming risk if demand is weak.
- Best Efforts: The underwriter tries to sell as much as possible but doesn’t guarantee all will be sold.
- Standby: Used in rights issues, the underwriter purchases any shares not taken up by existing shareholders.
In Australia, underwriting agreements are regulated by the Corporations Act 2001 and overseen by ASIC, with additional ASX Listing Rules for listed entities. In 2025, scrutiny around disclosure and risk allocation clauses is at an all-time high, driven by recent market disruptions and investor protection reforms.
Key Components of Modern Underwriting Agreements
While every underwriting agreement is tailored to the transaction, several core elements are standard across most deals:
- Amount and Type of Securities: Specifies the number and class of shares or bonds being issued.
- Underwriting Fee (or Commission): The payment to underwriters, typically a percentage of funds raised. In 2025, competitive deals see fees ranging from 2% for large-cap raisings to 5% for smaller or riskier offers.
- Material Adverse Change (MAC) Clause: Allows underwriters to withdraw if significant negative events occur before completion. Recent court cases have led to tighter definitions of what constitutes a MAC.
- Termination Rights: Under what circumstances the agreement can be canceled—such as regulatory intervention, market crashes, or breach of representations.
- Warranties and Indemnities: Issuer promises about its financials and business; the underwriter is indemnified against losses from misstatements, subject to new 2025 limits on liability under ASIC’s latest guidance.
For example, when a fintech startup listed on the ASX in early 2025, its underwriting agreement included a detailed MAC clause referencing cyber incidents—a nod to the year’s increased regulatory focus on digital risk.
Why Underwriting Agreements Matter in 2025
In a year marked by global economic uncertainty and higher interest rates, underwriting agreements have become more than a formality—they’re a source of stability for issuers and investors alike. Here’s why they matter:
- Certainty for Issuers: Companies can plan expansion or pay down debt, knowing capital will be raised even if the market turns volatile.
- Investor Confidence: The backing of reputable underwriters signals quality and due diligence, especially amid tighter ASIC surveillance in 2025.
- Risk Management: Underwriting agreements allocate risks—such as misstatements or unforeseen market events—between parties, often limiting the issuer’s liability for matters outside their control.
Recent policy updates have also introduced new best-practice disclosures. From January 2025, ASX-listed companies must now provide a summary of key underwriting terms in offer documents, making it easier for retail investors to understand risks and protections.
Trends and Real-World Examples
Several trends are shaping underwriting agreements this year:
- Environmental, Social, and Governance (ESG) Clauses: Increasingly, underwriters are requiring issuers to warrant compliance with ESG standards, reflecting investor demand and regulatory expectations.
- Digital Execution: Entire underwriting processes are now managed via secure digital platforms, improving speed and auditability.
- Multiple Underwriters: Large raisings often use syndicates to spread risk and access broader investor bases. For instance, a 2025 $1.5bn capital raising by a major mining company saw three banks share underwriting duties.
With the rise of tech-driven offers and evolving market risks, today’s underwriting agreements are more complex and negotiated than ever before.
