The Financial Markets Authority (FMA) has released “Guidance Note: Pre-prospectus publicity – some practical guidance for issuers and their advisers”. A copy of the guidance note is available here.
The publication of this most recent guidance note is a continuation of FMA’s policy of issuing regular guidance to the market to assist participants.
THE PRE-PROSPECTUS PUBLICITY REGIME
In the guidance note, FMA confirms the principles that investors should not be persuaded to ignore the registered prospectus or to make their investment decisions before they have had an opportunity to give due consideration to the information in the prospectus and the investment statement. FMA cautions issuers from attempting to influence investment decisions by providing selective information to the market before those documents are available.
New Zealand legislation imposes tight restrictions on what an issuer can say about an upcoming offer. Broadly speaking the Securities Act 1978 allows an issuer to say that it is planning to implement an offer, mention what the terms might be and allow interested investors to pre-register an interest (provided it includes certain prescribed statements). No information about the issuer’s business can be provided without an exemption (discussed below).
BRAND RELATED / PROFILE-RAISING
FMA clarifies that an issuer can continue to carry out its usual brand related, profile-raising or customer focussed advertising prior to making an offer. However, the pre-prospectus publicity regime will restrict the use of brand / profile advertising that:
- contains or refers to the upcoming offer or to the securities to be offered;
- is provided in association with another advertisement that mentions the upcoming offer; or
- is otherwise reasonably likely to induce persons to subscribe for securities.
In the guidance note FMA clarifies that it is more likely for a communication to appear “in association with” another if there is a physical or temporal proximity of the two communications. The examples provided are where the two publications appear in the same publication, are physically distributed together or where TV or radio advertisements are published over a concentrated period of time.
An “association” may also arise if there is implicit cross-referencing of one to the other. Similarly, if an issuer were to commence, radically change the content, or materially increase the intensity of its brand-related advertising in the period shortly before announcing or launching an offer.
The guidance note sets out FMA’s policy on granting exemptions for pre-prospectus publicity. Any exemption which permits information to be included in an advertisement which is wider than that permitted by the statutory exemption must be consistent with the policy of the Securities Act. FMA will be keen to ensure that the information investors receive about the offer is controlled, so that retail investors are not inclined to make their investment decisions based on marketing information, rather than the offer documentation.
The guidance note provides examples of two types of exemption:
Limited information about the issuer
FMA acknowledges that it can be appropriate to grant an issuer an exemption to allow it to include limited information about its business (including, for example, its logos), particularly where the entity has not previously conducted a public offer and is not well known to the market. Exemptions of this nature are not intended to permit detailed information about an issuer’s business or its future prospects.
In the case of both the Government’s Mixed Ownership Model and Fonterra’s ‘Trading Amongst Famers’ programme, FMA granted exemptions to allow pre-prospectus communications to include more than the limited information permitted under the Securities Act. In both instances FMA acknowledged that there were public interest grounds that warranted more fulsome information being provided to shareholders (in the case of Fonterra) and the general public (in the case of the Mixed Ownership Model).
The guidance note includes a useful clarification that FMA does not consider that research reports are ‘advertisements’ for the purposes of the Securities Act where they are prepared in respect of the issuer by analysts and confidentially distributed prior to the registration of a prospectus to institutional investors and financial advisers employed by the lead managers and brokers engaged by the issuer on the offer. The provision of research reports in this way is often a key step in the lead up to launching a public offer, although the legal status of research reports in New Zealand has been unclear. This is helpful guidance that should allow the current market practice regarding research reports to continue.