Unlisted debenture issuers face tough new rules

Tony D'Aloisio

Any new debenture issuers entering the $7 billion unlisted unrated debenture market from December 1 this year will have to secure a credit rating from one of three rating agencies recognised by the Australian Securities and Investments Commission(ASIC).

Under new disclosure benchmarks for debenture issuers released by ASIC yesterday, new issuers will have to be rated by either Standard & Poor’s, Moody’s Investors Service, or Fitch Australia (as reported in Money Management on November 1, 2007).

Among numerous other required disclosures, the new benchmarks require issuers to have a minimum of 20 per cent equity where more than a minor part of their debenture funds are invested in property development.

Issuers will also have to retain a panel of valuers for any underlying properties, as well as estimate their cash needs for the next three months and have cash or cash equivalents on-hand to meet this need.

An accompanying draft regulatory guide on debenture advertising will see publication of interest rates banned without a credit rating as well as the use of the words ‘safe’, ‘secure’ and ‘guaranteed’.

The benchmarks are based on more than 60 submissions from debenture issuers, industry and consumer groups in response to ASIC’s consultation paper released on August 23, 2007.

They are “designed to help retail investors and their advisers to assess risk and the risk-reward prospects of unlisted and unrated debentures”, according to ASIC chairman Tony D’Aloisio.

He said ASIC will now “work with unlisted and unrated debenture issuers” to discuss the benchmarks and their preparation for the enhanced reporting they will be required to provide to investors by March 1, 2008.