Corporate Advisory

13 Aug 2009

Capital Raising Made Easier

The Securities (Disclosure) Amendment Act 2009 (Amendment Act) is now in force. The Amendment Act reduces some of the regulatory barriers facing New Zealand businesses looking to raise capital.

The Act does this by introducing the simplified disclosure prospectus (SDP) regime. It also changes some of the categories of offers which are exempted from Securities Act 1978 (Securities Act) compliance.

Simplified Disclosure Prospectus Regime

The SDP regime reflects the idea that a listed issuer should not have to comply with the full disclosure requirements of the Securities Act when it offers securities. This is because listed issuers already disclose material information under the NZX Listing Rules' continuous disclosure requirements.

The SDP regime allows a listed issuer to offer debt and equity securities using an offering document which refers to information which has been disclosed to NZX.

The SDP regime will not be available until the content requirements for a SDP are settled. Regulations setting out the content requirements are expected to be made within the next month.

Draft regulations released earlier this year stated that:

• a SDP must contain "all information that investors and their professional advisers would reasonably require to make an informed assessment of the offer";
• all the issuer's NZX announcements meeting this test must be referenced in the SDP; and
• where announcements are referenced, copies of the announcements must be registered with the SDP.

We support the SDP regime, but it may not provide the efficient solution originally intended. Many issuers had hoped that the regime would allow a listed issuer to issue securities without needing to reconsider its NZX announcements. The draft regulations do not achieve this outcome.

• First, an issuer will need to determine which of its announcements should be referenced. For regular or conservative disclosers, this may take some time.
• Secondly, the continuous disclosure standard is different from, and will not always meet, the higher prospectus disclosure standard. Further information might need to be included in the SDP, to raise the announced information to prospectus standard.
• Thirdly, under continuous disclosure, an issuer is not required to disclose information already reflected in the trading price of a security. The SDP standard requires all material information to be included in the SDP, whether or not the market is generally aware of it. Again, further information might need to be included in the SDP, to supplement announced information.

Unless the final regulations address these issues, there is a risk that the SDP regime will fail to meet its objectives.

Categories of Exempt Offers

The Amendment Act also changes some of the categories of offers which are exempted from Securities Act. In particular, it amends the categories of persons who can receive offers without there being an investment statement and registered prospectus. Some of the amendments extend existing exemptions while others remedy current anomalies.

• An exempt offer to "eligible persons" (eg certified "wealthy" persons) can now be combined with other exempt offers (eg to institutional investors). Previously such offers could only be made separately. This was a recognised anomaly in the Securities Act. 
• An issuer has an 18 month window to make subsequent exempt offers of any value to a person who has invested $500,000 in one transaction.  Previously the minimum subscription price for each offer was $500,000. This will assist with follow-on capital raisings.
• A person's certification as "wealthy" is now valid for 12 months. Previously, the certification could not last for more than six months.
• The Amendment Act has clarified the "eligible person" test does not need to be applied to each trustee of a trust.

Authors

Kevin Jaffe

Partner - Corporate & Commercial

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Shelley Cave

Partner - Corporate & Commercial

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Peter Hinton

Partner - Corporate & Commercial

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Don Holborow

Partner - Corporate & Commercial

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Michael Pollard

Partner - Corporate & Commercial

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Alex Campbell

Senior Associate - Corporate & Commercial

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