ASIC has provided class order relief which will help promote the issue of vanilla corporate bonds to retail investors.

The ASIC initiatives will simplify the disclosure requirements for certain offers of listed vanilla bonds by allowing such offers to be made with reduced disclosure under a short-form prospectus. The measures will also allow vanilla bonds to be offered under a two-part prospectus, comprising a base prospectus (which may be used for a number of different offers) and a second part prospectus (which will relate to a particular offer).

ASIC has also provided class order relief to facilitate offers of convertible notes to wholesale investors.

‘This is an important change which will help build the depth and liquidity of the country’s capital markets and, in the longer-term, assist in developing Australia as a global financial centre,’ said Mr Tony D’Aloisio, Chairman of ASIC.

‘This relief will facilitate corporate fund raising, reducing the time and expense for companies to issue these bonds,’ Mr D’Aloisio said.

The relief is subject to the following conditions:

• the size of the issue is at least $50 million to maximise the prospects of a liquid secondary market (this requirement will lapse after 2 years unless ASIC renews it)
• the bonds will be publicly quoted on an exchange on issue;
• the issuer must provide certain upfront and ongoing disclosures in relation to the bonds
• companies issuing the bonds are listed and have a good continuous disclosure history
• they have not been suspended for more than five days over a period of 12 months
• the bonds are vanilla, that is, they are do not have complex or unusual terms of conditions
• the bonds have a maximum term of ten years, and
• the relief does not currently extend to the issue of subordinated debt (ASIC intends to consult further on relief for offers of subordinated bonds within the next 12 months).

The relief is consistent with recommendations of the Johnson Report on ‘Australia as a Financial Centre: Building on our Strengths’ to develop a more diversified and liquid retail bond market, but does not adopt all of its recommendations at this stage. For example, the ASIC relief is limited to issuers that are listed on an Australian financial market rather than overseas markets. In addition, the ASIC relief does not require the bonds or the issuer to have a minimum credit rating since there are currently no credit ratings agencies with a licence covering the provision of ratings to retail investors.

The outstanding value of debt securities, as measured by the Reserve Bank of Australia, grew three fold between 30 June 2000 and 31 March 2010, from $586.3 billion to $1,786.8 billion.

The relief is contained in Class Order [CO 10/321] Offers of vanilla bonds and in Class Order [CO 10/322] On-sale for convertible notes issued to wholesale investors and will take effect from 12 May 2010. Further details about the relief are contained in Regulatory Guide 213 Facilitating debt raising (RG 213). ASIC has also made minor updates to Regulatory Guide 173 Disclosure for on-sale of securities and other financial products (RG 173) to reflect the relief in [CO 10/322].

Background

This relief follows the issue in December 2009 of Consultation Paper 126 Facilitating Debt Raisings (CP 126) (refer: 09-243MR).

A corporate bond is a debt instrument in which an investor loans money to a corporate entity for a defined period of time at a fixed or floating interest rate. The issuer identifies the interest rate payable, when it is payable and promises to repay the face value of the bond to the holder at maturity. For a fixed rate bond, the interest rate prevails for the life of the bond. For a floating rate bond, the interest rate payable usually varies according to a market determined base rate plus a margin (fixed at the time of issue).

Read:

• RG 213
• RG 173
• REP 196Response to submissions on CP 126 Facilitating debt raising
• [CO 10/321] and Explanatory statement to [CO 10/321]
• [CO 10/322] and Explanatory statement to [CO 10/322]

Editor's note 1:

This media release indicates that ASIC intends to consult further within the next 12 months on relief for offers of subordinated bonds. In December 2010, the Federal Government announced that it would further streamline disclosure requirements for offers of corporate bonds to retail investors as part of its Competitive and Sustainable Banking System reforms. In light of this announcement, ASIC does not currently propose to consult further on relief for offers of subordinated bonds.

Editor's note 2:

On Friday 11 May 2012 ASIC issued Class Order [CO 12/543] Variation of Class Order [CO 10/321], extending ASIC's relief for offers of vanilla bonds until 12 November 2012. ASIC also updated RG 213 Facilitating debt raising to reflect this change and make other minor updates.