ASIC today released a consultation paper proposing class order relief and guidance to help foreign companies offer CHESS Depositary Interests (CDIs) over their shares to investors in Australia.

CDIs are used to allow the shares of some foreign companies listed on ASX to be traded in Australia.

The proposals in Consultation Paper 220 Fundraising: Facilitating offers of CHESS Depositary Interests (CP 220) aim to provide the market with certainty about how offers of CDIs over foreign shares are regulated under the Corporations Act 2001 (Corporations Act) and to minimise costs for foreign companies.

The proposals include:

• confirming initial offers by foreign companies to investors should be made under a prospectus

• clarifying in a class order that foreign companies, and not the depositary nominee that provides the CDIs, are responsible for providing disclosure to retail investors for offers of CDIs

• modifying the Corporations Act so that the fundraising disclosure provisions operate effectively for offers of CDIs over shares in foreign companies, and

• guidance to help foreign companies comply with the fundraising disclosure requirements and to provide effective disclosure to retail investors for offers of CDIs.

ASIC Commissioner John Price said, ‘Foreign companies are increasingly looking to raise capital and to avail themselves of market opportunities in Australia, and investors in Australia are also increasingly looking at offshore investment opportunities.

‘Our proposals aim to encourage foreign companies to make equity offerings in Australia in an efficient way, while also promoting investor understanding and confidence.’

The proposed class order relief, which reflects current market practice, will have the effect of easing the compliance burden for foreign companies as they will no longer need to approach ASIC for individual relief.

Submissions to CP 220 are due by 25 July 2014.

Download

CP 220 (including draft class order and draft regulatory guide)

Background

Some foreign companies listed on Australian exchange markets offer CDIs over their shares to investors in Australia.

This is because the settlement system used for equity securities traded in Australia, the ASX Clearing House Electronic Sub Register System (CHESS), cannot be used for the transfer of securities where the issuing company is domiciled in a country whose laws do not recognise uncertificated holdings or electronic transfer of title. As a result, CDIs were developed as a method of transferring and holding foreign shares in CHESS.

Although CDIs have been a feature of Australian exchange markets since the mid-1990s, there is uncertainty about how offers of CDIs over foreign shares are regulated under the Corporations Act. As a result, there are differing legal views in the market about how CDIs are characterised, which disclosure regime applies to offers of CDIs and who offers and issues CDIs for the purpose of the Corporations Act.

As a result of the uncertainty in the market, foreign companies have had to apply to ASIC for individual relief for offers of CDIs over their shares in order to ensure that the fundraising disclosure requirements in Ch 6D of the Corporations Act work effectively for these offers.

ASIC recently undertook informal consultation with the market, which highlighted the need and desire for more extensive and updated class order relief and guidance for offers of CDIs over foreign shares. Some respondents specifically requested, and all respondents were generally supportive of, ASIC issuing class order relief to provide the market with certainty about offers of CDIs.