Australia: Corporate retail bond market jump started by ASIC and disclosure for convertible notes eased

Last Updated: 17 December 2009
Article by Louise McCoach

ASIC jump-starts corporate retail bond market and eases disclosure for convertible notes

ASIC wants to facilitate the establishment of a retail corporate bond market, by easing prospectus requirements for listed issuers:

  • it proposes simplified prospectuses similar to transaction-specific prospectuses for corporate bonds; and
  • it seeks feedback on whether the simplified prospectuses should be structured as two-part prospectuses;

It is also proposing to allow cleansing notices to facilitate the on-sale of securities issued on the conversion of convertible notes.


ASIC's proposals for bonds need to be seen in the context of the growing support for the development of a retail corporate bond market in Australia. ASX would like to quote government bonds as a precursor to the development of a corporate bond market, while the National Executive of the Group of 100 has formed a Working Group to investigate the feasibility of developing a corporate bond market in Australia.

While ASIC's proposals will be extremely useful, some key elements in developing a retail bond market could be subject to decisions made elsewhere. A particular issue is whether corporate bond issuers should be subject to prudential regulation - a question which ASIC raised in its submission to the recent Parliamentary inquiry into the financial services industry.

Transaction-specific prospectuses

Offers of corporate bonds to retail investors generally require full prospectus disclosure. In contrast, a listed issuer generally only requires a transaction-specific prospectus for offers of quoted shares, options over quoted shares and securities that are convertible into quoted shares. The advantage of a transaction-specific prospectus is that it does not have to include certain information that is required for full prospectus disclosure (information already disclosed to the market).

An offer of corporate bonds can be made using a transaction-specific prospectus if the bonds are in a class of continuously quoted securities. However, if new corporate bonds have a different term or interest rate from existing bonds, they will be in a new class and a transaction-specific prospectus cannot be used. The practical effect of this is that very few corporate bonds are eligible for transaction-specific prospectus relief. In recognition of this, ASIC is proposing to allow simplified prospectuses (similar to transaction-specific prospectuses) for issues of "vanilla bonds" by companies that have quoted shares on issue. A "vanilla bond" would:

  • be quoted on issue;
  • be denominated in Australian dollars;
  • have a fixed term of no more than 10 years (with accrued interest payable at term);
  • have either a fixed rate or a floating rate made up of a market-determined rate plus a fixed margin;
  • pay interest periodically;
  • not be subordinated or convertible;
  • be issued at the same price to all investors.

In addition, the aggregate size of the bond issue would have to be at least $100 million. It is also important to note that ASIC's proposals still require retail bond issues to comply with the trust deed and trustee requirements of Ch 2L of the Corporations Act. In addition, retail bond prospectuses would not be eligible for exposure period relief, such as is currently available for offers of shares and options under transaction specific prospectuses.

The qualification requirements for the issuer would be the usual:

  • the issuer's shares have been quoted for at least three months;
  • trading in the shares has not been suspended for more than five days;
  • the most recent auditor's report was unqualified.

Given the specialised nature of the product, it is unsurprising that ASIC proposes some fairly specific disclosures for a vanilla bond prospectus. These include information about the gearing ratio, interest cover and working capital ratio, as well as details of any higher-ranking debt.

Two-part prospectuses

What form would vanilla bond prospectuses take? ASIC currently allows some debenture issuers to use a "base prospectus", which contains all the relevant prospectus information except interest rates and terms, and an application form containing that information.

It proposes extending this concept to issues of quoted vanilla bonds. The idea is that the base prospectus would contain generic information, while a "second-part" prospectus would contain updated corporate information and information relevant to the particular tranche on offer. The issuer could prepare a base prospectus that could be used for a number of bond issues, only having to tailor the "second-part" prospectus for each tranche.

One of the matters on which ASIC is seeking comment is the division of information: what would be in the base prospectus and what would be in the second-part prospectus?

It also notes that the current 13-month maximum term for prospectuses may undercut the utility of the two-part idea. Accordingly, it is asking whether there should be a different maximum term.

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 means that:

  • the notes are issued with a prospectus; or
  • a cleansing notice is issued each time the notes are converted (rare).

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 proposes to simplify things by allowing on-sale of the underlying quoted securities where the issuer has issued a 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. Importantly, this relief would only apply to sales of the underlying securities - not the convertible notes themselves.

So what now?

ASIC needs comments on the proposals by 19 February 2010. Any changes, along with class orders etc, would be released in April 2010.

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

Click to Login as an existing user or Register so you can print this article.

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”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.