ASX Ltd shares drop 6% on $150m capital charge

ASX Ltd (ASX: ASX) shares fell 6% today after the company revealed it must carry an additional $150 million of capital above its net tangible assets (NTA) by 30 June 2027. This additional capital charge will remain in place until regulatory milestones in the revised Accelerate Program are met to the satisfaction of the corporate regulator ASIC.

This follows the release of an interim report from the expert ASIC Inquiry Panel, and the stock is now down 18% year to date, reflecting persistent investor concern over the ASX’s governance, operational resilience, and mounting transformation costs.

Why ASX Ltd’s shares sold off

In a market announcement released this morning, ASX committed to a broad strategic package of actions in response to ASIC’s findings. The Panel’s interim report concluded that ASX must substantially improve operational risk management, governance, and leadership across its clearing and settlement businesses.

The most immediate financial impact is the $150 million uplift in additional capital above net tangible assets, which effectively constrains the company’s balance sheet and depresses future returns on equity.

Dividend policy tightened

In order to accumulate the additional capital, ASX will:

• Lower its dividend payout ratio range from the previous range of 80% – 90% to a new range of 75% – 85% of underlying NPAT
• Hold dividends at the bottom end of the new range for at least the next three dividends
• Operate a discounted dividend reinvestment plan (DRP) to boost retained capital

This combination signals reduced cash yields to shareholders over the near term and is one of the key drivers of today’s share price reaction.

For income-focused investors, this means dividend growth will be softer in the near term. While the ASX remains a profitable business, more of its earnings will now be diverted toward strengthening the balance sheet.

Lower return expectations

The ASX also downgraded its medium-term return on equity (ROE) target from a previous range of 13% –14.5% to a new range of 12.5% –14%.

This reflects the fact that a heavier capital base and the costs associated with remediation efforts will weigh on profitability.

Foolish bottom line

The market’s reaction suggests investors expect a longer, more complex transformation period for the ASX ahead. While the ASX continues to invest heavily in technology and governance improvements, its cost base is rising, returns are becoming tighter, and dividend flexibility is being reduced.

For investors, the key question is whether the worst is now priced in and if the ASX’s near-term challenges create a long-term opportunity. If management successfully delivers its reset and restores confidence, today’s weakness could eventually look like a buying window. But for now, the stock remains under pressure as the company works through regulatory and operational hurdles.

The post ASX Ltd shares drop 6% on $150m capital charge appeared first on The Motley Fool Australia.

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Motley Fool contributor Kevin Gandiya has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.