Listed companies given bond boost

The Rudd Government has improved conditions for bond issuance by Australian listed companies through measures announced in the Federal Budget handed down tonight.

Listed Australian businesses will be able to more easily raise funds from retail investors, reducing reliance on bank borrowing, under changes announced by the Treasurer Wayne Swan.

The Australian Securities and Investments Commission (ASIC) will now allow certain listed entities to issue bonds to retail investors with reduced disclosure requirements, using short-form prospectuses.

The disclosure relief comes in hand with new tax incentives aimed at encouraging Australians into savings products like corporate bonds. Under measures announced tonight investors will be able to obtain a 50 per cent tax discount on up to $1,000 of interest income earned on savings products including corporate bonds, starting from 1 July 2011.

New short-form prospectuses allowed by ASIC will aim to set out the key information required, but without “unnecessary detail” which may confuse investors. A reduced ‘base’ prospectus would also be able to be updated with terms for any new bond offers. Key items for disclosure will include the terms of the offer and the ability of the bond issuer to meet its interest and repayment obligations.

The companies granted the new conditions must be listed, have good continuous disclosure history, and must offer 'vanilla' bonds with issuances of at least $50 million. The $50 million dollar requirement may lapse after the first two years. Bonds approved under the new measures must have a maximum term of 10 years. At this stage the relief does not extend to the issue of subordinated debt.

ASIC’s class order relief will take effect from tomorrow, 12 May 2010. ASIC has also provided class order relief to facilitate offers of convertible notes to wholesale investors.

ASIC chairman Tony D’Aloisio described the change as one that would “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”.

The Government hopes the move will put competitive pressure on bank lending rates to businesses, as well as reducing the level of funding Australian banks are required to source from offshore markets.

“This will help develop a deep and liquid Australian corporate bond market, making it easier for Australian businesses to diversify their funding sources as an alternative to borrowing from the bank,” Swan’s statement said.

The changes flow from recommendations made in the Johnson Report, which examined how to position Australia as a leading financial centre.