On 14 October 2013, the Monetary Authority of Singapore (“MAS”) issued a Policy Consultation on Proposals to Facilitate Better Understanding of Prospectuses, to which we were one of the named respondents. On 5 February 2015, the proposals made in that Consultation took a further step forward in various ways:
- Product High Sheets (“PHS”) will have to be issued for any offer of plain vanilla debentures, preference shares, perpetual securities, convertible bonds, ordinary shares, units in a real estate investment trust, or units in a business trust which is submitted or lodged with the MAS on or after 1 July 2015. The details and prescribed templates are set out in the Guidelines on the Product Highlights Sheet for Offers of Debt Securities, Hybrid Instruments and Equity Securities (“Guidelines”) issued by the MAS on 5 February 2015.
- The MAS intends to allow certain information to be incorporated by reference into prospectuses. This will only apply to certain prescribed types of information. The MAS will be amending the Securities and Futures Act (“SFA”) to implement this. A consultation on the proposed legislative amendments will be carried out later this year.
- A Public Consultation on Guidelines on Good Drafting Practices for Prospectuses was issued by the MAS on 5 February 2015. These propose general principles on the use of plain English in prospectuses. The last day for feedback is 13 March 2015.
Requirement to Issue a PHS
Offers that require a PHS
As noted above, the Guidelines require issuers to issue a PHS to investors in any of the following types of offers:
- offers of plain vanilla debentures where the offer is required to be accompanied by a prospectus or Offer Information Statement (“OIS”);
- offers of preference shares, perpetual securities, or convertible bonds (“Hybrid Instruments”) where the offer is required to be accompanied by a prospectus or OIS; and
- offers of ordinary shares, units in a real estate investment trust, or units in a business trust (“Equity Securities”) where the offer is required to be accompanied by a prospectus.
Definition of “plain vanilla debenture”
A plain vanilla debenture is one that is offered by an entity which:
- provides for repayment of the principal sum at the end of the fixed term;
- has periodic interest payments which cannot be deferred;
- carries a fixed interest rate or floating rate of interest comprising a reference rate plus a fixed rate (the sum of which may not be less than zero), which cannot be decreased;
- is not convertible into or exchangeable for other securities, equity interests, or property, or attached with options, warrants, or similar rights to subscribe for, or purchase other securities, equity interests, or property; and
- is not an asset-backed security or structured note.
As noted above, the Guidelines will apply to all offers submitted or lodged with the MAS on or after 1 July 2015.
PHS templates and page limits
A PHS has to follow the prescribed templates set out in the Guidelines, and issuers are required to adhere to the format and the headings and sub-headings set out in the templates. Page limits for the PHS’s have also been prescribed. Following feedback received during the Public Consultation on Proposals to Facilitate Better Understanding of Prospectuses (including our own), the MAS has increased the proposed page limits and these are now as follows:
- Page limits for plain vanilla debentures: 12 pages where a prospectus is required and 8 pages where an OIS is required.
- Page limits for Hybrid Instruments: 12 pages regardless of whether a prospectus or OIS is required.
- Page limits for Equity Securities: 12 pages where a prospectus is required.
Format for PHS
The format for the PHS is broadly similar to that already prescribed for offers of the following instruments where the offer is made in or accompanied by a prospectus:
- debentures issued pursuant to a securitisation transaction and structured notes (including exchange-traded notes); and
- unlisted collective investment schemes and exchangetraded funds.
As was the case with these instruments, the MAS intends to eventually migrate the requirements set out in these Guidelines into the SFA.
Incorporation of Information into Prospectuses by Reference
Information that may be incorporated by reference
In its Policy Consultation on Proposals to Facilitate Better Understanding of Prospectuses, the MAS had also proposed that issuers be allowed to incorporate certain information in their prospectuses by reference. It had suggested that this could apply to the following information:
- the audit report in respect of historical financial information which is presented in the prospectus;
- the list of directorships held by directors of the issuer in other corporations in the last five years; and
- valuation reports and industry overview reports which are prepared by experts who have given their consent pursuant to section 249 of the SFA.
Additions to the list
After considering feedback on this proposal, the MAS has decided to extend the list of information that may be incorporated by reference to also include:
- list of directorships held by executive officers in other corporations in the last five years;
- all reports issued by experts who have given their consent pursuant to section 249 of the SFA;
- information on relevant laws or regulations applicable to the issuer; and
- constituent documents of the issuer.
The incorporation of information by reference will not apply to the prospectus that is lodged on the Offers and Prospectuses Electronic Repository and Access system. Hence, the version lodged must be the full prospectus.
Requirement when incorporating information by reference
When incorporating information by reference, the prospectus must contain a statement that the issuer will provide a copy of the incorporated information free of charge upon request. The prospectus must also contain sufficient information about the incorporated information to allow an investor to decide whether to obtain a copy of the incorporated information. The MAS has explained that at a minimum, investors must be provided with a description of the information which is incorporated by reference, and the issuer must explain to investors the relevance of the information to the investor’s investment decision.
As noted earlier, in order to implement this proposal, the SFA will have to be amended and the MAS will issue a consultation paper later this year on the proposed legislative amendments.
Public Consultation on Good Drafting Practices for Prospectuses
Plain English to be used
PHS’s are, as set out in the Guidelines, to be drafted in clear and simple language that investors can easily understand. The use of plain English is recommended as well for prospectuses, and the MAS has issued a Public Consultation on Guidelines on Good Drafting Practices for Prospectuses. The proposed guidelines set out general principles for issuers to bear in mind. These include presenting information in a clear, concise, and logical manner and avoiding unnecessarily lengthy sentence structures. To also avoid the tendency for lengthy prospectuses, the MAS also suggests that issuers should avoid including information that add length without enhancing the quality of information disclosed. As noted above, the last day for feedback is 13 March 2015.