ASIC last night released its much-anticipated disclosure regime
for retail bonds.
As well as facilitating a retail corporate bond market in
Australia, the suite of changes aims to ease disclosure
requirements for convertible notes.
In brief, the package:
allows vanilla bonds to be issued under a special prospectus,
modelled on transaction-specific prospectuses;
allows vanilla bond prospectuses to be in two parts (with the
general idea being that one part would be a base prospectus for
several offers and the other would contain information specific to
a particular tranche);
allows the base prospectus to have a life of two years (the
issue-specific prospectus would have a 13 month life);
allows the on-sale of securities that have been issued on
conversion of a convertible note without a cleansing statement
(provided that a special cleansing statement was issued when the
notes were first issued).
ASIC's final position differs in some respects from its
original proposals in December last year. The major change is that
it has dropped the minimum subscription from $100m to $50m, and
proposes to drop it completely in two years time.
Vanilla bond prospectus conditions
There are, of course, a lot of conditions attached to the
vanilla bond disclosure relief. These include:
vanilla bond prospectuses can only be used by an issuer who is
qualified to use a transaction-specific prospectus (although there
may be case-by-case relief to allow issues through special-purpose
vanilla bonds have to be quoted on issue and each issue must
have a minimum subscription of $50 million (although the minimum
will be abolished in two years time);
the bonds must have a fixed term of no more than 10 years;
there is a special list of investor-friendly information that
must be included in a vanilla bond prospectus;
key information will have to be updated periodically on the
In addition, it's important to note that vanilla bond
prospectuses cannot be used:
for subordinated bonds (although ASIC will revisit that issue
over the next year);
by foreign issuers listed on a foreign exchange.
On-sales and convertible notes
The offer of convertible notes to institutional investors does
not legally require a prospectus. However, the possibility of
on-sale of the underlying securities to retail investors usually
the notes are issued with a prospectus; or
a cleansing notice is issued each time the notes are converted
Both options are unattractive: a wide range of people (other
than just the issuer) are liable for a prospectus, while the
possibility of multiple conversions creates a multiple cleansing
notice headache (apart from anything else, an investor's
decision to convert may force the issuer to issue a cleansing
notice that contains confidential price-sensitive information).
ASIC has moved to simplify things by allowing on-sale of the
underlying quoted securities where the issuer has issued a special
cleansing notice at the time of issue of the convertible notes. The
intention is that the issuer's continuous disclosure
obligations will ensure that retail investors are adequately
informed before they decide to buy the underlying quoted
securities. This relief only applies to sales of the underlying
securities - not the convertible notes themselves - and is
conditional upon additional disclosure being made in the
issuer's annual reports.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).