A bill amending the Corporations Act which will make the process of issuing bonds to retail investors simpler has now passed through both Houses of Parliament and is awaiting assent.
The new regime will allow listed companies to issue “simple” bonds to retail investors without compliance with the full IPO-style prospectus requirements of Chapter 6D of the Corporations Act. Instead, companies who have their shares listed on a “prescribed financial market” (including the ASX and Chi-X) will be able to issue “simple corporate bonds” under a 2-part prospectus which will be subject to a less onerous liability regime (directors of the company and persons named in the prospectus with their consent will not have “deemed” civil liability).
The 2-part prospectus will comprise a base prospectus with a 3 year life and an “offer-specific” prospectus (which would contain the commercial terms of the bonds). The content requirements for both documents will be contained in regulations which we understand are proposed to be released by Treasury for a period of public consultation.
A simple corporate bond must have the following characteristics:
- Listed debenture
- A$ denominated
- Fixed term of not more than 15 years
- Fixed or floating rate interest (and if floating – the rate must comprise a reference rate and a fixed margin) – which may not decrease
- Interest payments cannot be deferred or capitalised
- The face value cannot exceed $1,000
- Redemption prior to maturity only in certain circumstances including at the request of the holder, on a change of control or where there are changes to the deductibility or withholding tax status
- Unsubordinated and cannot be converted to another class of securities
- Issuer must have continuously quoted securities on issue (or be a wholly-owned subsidiary of a listed company which guarantees the bonds).
The new regime will also allow for trading depositary interests in simple corporate bonds, rather than the bonds themselves. This mechanism will provide a foundation for linking wholesale and retail trading platforms, and is expected to operate in a similar manner to the reforms which permitted trading in depositary interests in Commonwealth Government Securities. The success of that initiative is likely to be key to the take-up of the new regime by significant wholesale bond issuers.
This is a positive step towards the development of Australia’s retail corporate bond market which we applaud. We hope that taking advantage of the disclosure platform provided by Australia’s continuous disclosure regime and moving towards the removal of anomalies in Australia’s securities law regime for offers of debt and equity to retail investors will help to foster a vibrant retail corporate bond market.