ASIC has released a new consultation paper1 seeking feedback on increased disclosure requirements for infrastructure entities which are aimed at improving the consistency and quality of disclosure for retail investors. The consultation paper proposes a benchmark based disclosure model for infrastructure entities, against which they must disclose whether they comply with the benchmarks on an ‘if not, why not’ basis and the inclusion of additional specific disclosures.
ASIC states that over the next 10 years, $A770 billion of critical infrastructure investment is anticipated in Australia and that more than half of this is likely to be raised from the private sector.
Who is affected?
The disclosure regime is aimed at both listed and unlisted vehicles.
ASIC has proposed a broad definition of an ‘infrastructure entity’ as:
‘a listed or unlisted registered managed investment scheme or company in which retail investors invest that has, or is likely to have, at least 70% of its non-cash assets in listed or unlisted infrastructure entities or infrastructure assets. These assets may be roads, railways, ports, airports, other transport facilities, telecommunication facilities, waste processing, gas or electricity generation, transmission or distribution, water supply and sewerage, hospitals, education, public housing or recreational facilities’
In relation to an infrastructure entity that is a property fund, ASIC proposes to apply the guidance developed based on this consultation paper, rather than Regulatory Guide 46 Unlisted property schemes—improving disclosure for retail investors.
What are the new disclosure benchmarks?
The disclosure benchmarks and additional required information include significant prescriptive disclosure in relation to:
- corporate structure and management – to address the infrastructure entity’s corporate structure, related party policy, independence of directors policy, management agreements, remuneration of management and fees (including whether any performance fees will be paid solely from operating cash flow)
- funding – to address the infrastructure entity’s policy on borrowing and hedging (including detailed disclosure of gearing ratios, net debt/EBITDA ratios, ability to comply with financing covenants and hedging)
- assumptions and sensitivity analysis – to address the key assumptions in the infrastructure entity’s business model and sensitivity analysis of those assumptions (including whether there has been expert confirmation of key assumptions in the entity’s base case model for forecasting profit, rates of return or distributions)
- valuation policy – to address the infrastructure entity’s policy on valuation of assets
- distribution policy – to address the infrastructure entity’s policy on funding and payment of distributions (including whether distributions will only be paid from operating cashflow)
- withdrawal policy – to address the withdrawal policy of an infrastructure entity that is a unit trust, and
- portfolio diversification – to address the infrastructure entity’s policy on portfolio diversification.
Each of the disclosure benchmarks contain two components, benchmark statements that set levels against which disclosure on an ‘if not why not’ basis is required and specific additional disclosure requirements.
As an example
Infrastructure entities are not required to structure their businesses to meet the suggested disclosure benchmarks. Where numbers are used in the benchmarks ASIC does not necessarily consider that those numbers are appropriate for all infrastructure entities.
Where will the information be disclosed?
ASIC anticipates that infrastructure entities would include the new disclosure in offer documents as well as in any periodic statements to investors such as annual reports.
The disclosure is to be made in a table (in at least summary form) within the first 15 pages which states the benchmark, whether it is met and an explanation if it is not met. The additional disclosure information for that benchmark is to immediately follow the benchmark disclosure in the same order as set out in the consultation paper.
What is the proposed timetable for submissions?
ASIC is seeking comments on the proposals in the consultation paper, alternative approaches, likely compliance costs and other impacts, costs and benefits the proposals contained in the consultation paper may have by 30 June 2010 with a view to releasing a regulatory guide on 30 September 2010.