Corporate Advisory

28 Sep 2009

New Securities Regulations – A Sea Change

Disclosure requirements for securities offerings will undergo a sea change when new Securities Regulations come into force on 1 October 2009. The changes are perhaps the most significant since investment statements were introduced in 1997.

The primary driver behind the Securities Regulations rewrite was to implement the new Simplified Disclosure Prospectus (SDP) regime for listed issuers. The opportunity has also been taken to make a raft of other changes, which will alter the securities offering landscape considerably.

In this FYI we provide a highly summarised outline of the changes.

Transition

The new Securities Regulations are in force from 1 October 2009, but there are some key transitional provisions:

• offers made prior to 1 October 2009 are still governed by the old regime under the Securities Regulations 1983;
• issuers are permitted to make offers under the new regime or the old regime until 30 June 2010; and
• all new offers after 30 June 2010 must be made under the new Securities Regulations.

New SDP Regime

The new SDP regime allows listed issuers to use a SDP instead of a full investment statement and prospectus to offer securities to the public.

Changes to the Securities Act allowing SDPs to be used by listed issuers were enacted at the end of July. The final form of the regime is mostly determined by these new regulations.

Who can use the SDP regime?

To use the SDP regime, you must be an issuer subject to continuous disclosure obligations - i.e. you must be listed on a market operated by NZX.

This reflects the policy underpinning the SDP regime. If you are disclosing continuously to NZX, you should not be required to meet full offer document requirements to sell new securities.

What securities can a SPD be used for?

To use the SDP regime a listed issuer must be offering:

• securities of the same class as securities which are already listed (which must be equity securities, debt securities or units in a unit trust); or
• equity or debt securities which rank equally with or in priority to a class of listed securities.

Content requirements for a SDP

The content requirements for a SDP depend on the type of security being offered.

If you are offering a security of a class already listed, the disclosure requirements are less onerous. Effectively the SDP can be a terms sheet with:

• basic information about the issuer, promoters, underwriters, and other persons involved with the issue;
• brief information about the securities being offered;
• all the terms of the offer;
• information on the relationship of the offered securities with listed securities;
• a reference to the latest financial statements for the issuer's group;
• a list of information disclosed under continuous disclosure obligations which is material to the offer;
• information to correct or update disclosed information; and
• any unreleased material information which is likely to assist a prudent but non-expert person to decide whether or not to buy the securities offered.

It all seems very straightforward, but it is the last three bullet points which might make the regime more onerous than it looks. The reference to continuous disclosure information in the SDP will mean it is incorporated by reference in the SDP, with full prospectus liability attaching in relation to the announcements referenced. Some due diligence around disclosed information will be called for.

Also, the final bullet point could capture information which is being withheld under exceptions to continuous disclosure (e.g. incomplete proposals or negotiations). We believe it is likely a practice will emerge of making a "cleansing announcement", prior to releasing a SDP, to capture all additional information which will need to be disclosed. This will keep the SDP down to "terms sheet" length.

If you are offering a security which is not already listed, but ranks equally with or in priority to a listed security, the information requirements are more onerous. In particular, there is a general "other material matters" disclosure requirement, which requires the issuer to disclose all other information which is material to the offer. This will trigger due diligence requirements similar to those for a full prospectus under the existing regime but, with a shorter document, less line-by-line verification will be required.

Other Changes

There are many other changes brought in by the new regulations, some of them very technical, others substantive. We focus on some of the more important substantive changes below.

• Sensible Accounting Requirements: The special purpose accounting requirements for financial statements included in prospectuses have been done away with. Under the new Securities Regulations, NZ GAAP compliant financial statements are all you need. This will significantly reduce the cost of generating financial information for a prospectus of any type.
• Prospective Information: A full set of prospective financial statements will be needed for a prospectus relating to an IPO, not just a statement of cash flows. The odd "1 year from prospectus registration" balance date for the prospective information is gone, however, and the financial statements can be tied to an issuer's actual balance date.
• Variable Pricing: The requirement to state a fixed price for securities offered under a prospectus has been removed. The prospectus must state "the manner by which that amount is fixed", but this will massively increase flexibility in offer pricing. There was an existing exemption from this requirement for listed issuers, but effectively this extends the exemption to all issuers, without the unwieldy conditions which apply to the listed issuer exemption.
• Unit Trust Rights Issues: Unit trusts will now be permitted to use the short form prospectus regime, for rights issues to existing unit holders. This feature of the existing regime previously only applied to issues of equity and debt securities.
• Advertisement Certificates: Any director may now appoint an agent to sign advertisement certificates, not just directors who are overseas.

The above is a very brief and condensed account, and there is a lot more in the detail. If you would like more information please get in touch.

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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Joanna Lim

Senior Associate - Corporate & Commercial

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