New legislation is expected to be passed in the Senate next week aimed at making it easier for companies to issue corporate bonds, thus expanding their potential sources of debt financing.
The Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2014 has already been passed by the House of Representatives where it enjoyed bi-partisan support. And, Treasury is believed to be consulting with the market on the regulations it has developed for the changes.
The legislation also lays foundations that will enable retail investors to trade corporate bonds issued to the wholesale market on the Australian Securities Exchange (ASX) in the same way as they have been able to trade government bonds on the ASX since May last year.
According to Andrew Lind, a partner in law firm Gadens’ Sydney office, the Bill’s key measures are as follows:
A streamlined disclosure regime: This enables the issuing of simple corporate bonds to retail investors by way of a two-part prospectus (consisting of a base prospectus and an offer-specific prospectus) instead of a full prospectus. Its content requirements for the two-part prospectus are to be specified by regulations and the Australian Securities and Investments Commission (ASIC) will have the power to make a determination to prevent a company from relying on the streamlined disclosure regime.
Directors’ liability: Directors will have liability for any misstatement in, or omission from, the disclosure document only where they are involved in the misstatement or omission from the disclosure document. The Bill also contains due diligence defences to criminal liability relating to false or misleading statements.
However, to be considered as “simple corporate bonds”, the debt securities must satisfy certain conditions, says Lind.
FIIG Securities CEO Mark Paton MAICD says despite the easing of the requirements and director liability, directors should not forget that retail investors need more protection than other investors, not less. “The level of disclosure should therefore be no less whether there is a lighter touch prospectus or not,” he says
Paton adds that unrated and unlisted companies have already been able to access the corporate bond market for the past two years, by issuing a corporate bond into the wholesale market under an information memorandum.
Over time, more developments are expected to bolster Australia’s domestic listed corporate bond market which remains underdeveloped when compared to those internationally. According to the World Economic Forum, Australia had the third highest number of listed companies per head of population in 2009 (behind Canada and Hong Kong), but its ranking for local issues of corporate bonds relative to GDP was 28th in 2011.
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