ASIC tightens debenture rules

The securities regulator has released a consultation paper outlining improved disclosure rules for the unlisted and unrated debentures market.

The improved disclosure measures will be based on an ‘if not, why not’ basis of reporting. This means issuers are expected to report to investors against certain principles and benchmarks, which they must follow or explain why they have not.

“The fundamental objective is to provide retail investors, and their advisers, with more investor information to make their decisions before they invest,” said Australian Securities and Investments Commission (ASIC) chairman Tony D’Aloisio.

The consultation paper is the next major stage in ASIC’s plan to deal with unlisted and unrated debentures, announced by D’Aloisio on May 30, 2007, at a hearing of the Senate Standing Committee on Economics.

The benchmarks will cover credit ratings, liquidity lending, adequate equity capital and loan portfolio diversification.

ASIC’s proposal is designed around four key principles, which will include providing benchmarks to assist retail investors and their advisers in assessing risk, and requiring issuers to disclosure against those benchmarks.

Issuers will also be required to have a minimum 20 per cent equity where funds are directly or indirectly lent to property developments.

ASIC also proposed that advertising for these products not use words such as ‘secure’ and ‘safe’ and plans to produce an investor guide to aid their understanding of how the benchmarks apply to them.

ASIC is taking submissions on the “Unlisted, unrated debentures — improving disclosure for retail investors” consultation paper until October 1, 2007.

“We would like to test our proposals and hear from all those involved on whether we have the right balance between improved disclosure for investors and not unduly restricting this market as a means of raising capital,” D’Aloisio said.