Following an extensive consultation process over a two-year period with relevant stakeholders in the project finance market, the South African Registrar of Securities Services (the “Registrar”) has announced that the Johannesburg Stock Exchange (“JSE”) Debt Listings Requirements (“DLRs”) have been amended with effect from 1 March 2018 to include a new section 10, which will now specifically cater for so-called “project bonds”.
“Project bonds” are defined as “bonds that are financed by the cash flows of a ring-fenced development project (for example, infrastructure or renewable energy projects)”. A key concern raised by project bond issuers during the consultation process related to their inability to comply with certain provisions of the DLRs, in particular, in relation to the disclosure of sensitive information to the public and complying with certain of the financial reporting requirements contained in the DLRs. These and other concerns are addressed in the new section 10, but time will tell to what extent market participants embrace these new DLRs, thereby making the debt capital markets more accessible to this market than is currently the case.
Key features of section 10 include:
- project bond issuers issuing project bonds in terms of section 10 may only issue project bonds to entities falling within a specified and closed list of “project bond investors”, ranging from insurers, banks, pension funds, the Government Employees Pension Fund and the Public Investment Corporation to international institutions such as the World Bank, the International Monetary Fund, the European Central Bank and the International Finance Corporation. As we understand, the main reason for this amendment is to address the concern that information about a project bond issuer should not be available to any member of the public or “non-professional investor” and to limit the risk of information falling into the hands of competitors who are not actual investors;
- provision is made for project bond issuers to utilise a virtual data room (“VDR”) to disclose certain confidential information that they prefer not to disclose on a website. VDRs will be operated by JSE- approved VDR providers, a list of which will be published on the JSE’s website;
- project bond issuers must make available all legal agreements relating to the cash flow earned on the project (for example, off-take agreements; operation and maintenance agreements; engineering, procurement and construction contracts; and tariff agreements) and certain other relevant documentation and information relating to the project, all of which must be made available on the project bond issuer’s website or the VDR, as the case may be; and
- project bond issuers that are unable to comply with certain of the existing financial reporting requirements contained in paragraph 5.3 of the DLRs (such as the requirement to submit financial statements for the last three financial years) may be exempted from complying with paragraph 5.3, provided that either an audited consolidated cash-flow model on the project or a profit forecast of the project bond issuer for the remainder of the financial year during which it will list the first debt security and for one full financial year thereafter, is provided to the JSE.