Interim stop order placed on real estate development fund
The Australian Securities and Investments Commission (ASIC) has placed an interim stop order on offers from Finnia Income Ltd in response to deficiencies in its target market determination.
The orders stop Finnia from issuing interests in, giving a prospectus for or providing financial advice to retail clients under the existing TMDs.
Finnia was an unlisted public company seeking to raise $20 million under a prospectus through the issue of redeemable preference shares in the company for the purpose of lending to real estate development projects.
Potential investors needed to contribute a minimum of $25,000 for a term of 72 months. The targeted interest rate is 8.15% paid quarterly.
At the time of lodgement of the prospectus, Finnia had not prepared a TMD for the offer.
In summary, the target market defined by Finnia in its TMD included investors:
- Wanting to invest a minimum of $25,000 in redeemable preference shares exposed to the property sector;
- Seeking an investment earning a higher return on investments than that offered by banks;
- With a balanced to aggressive risk profile; and
- With the ability to read and comprehend the prospectus.
Amongst other things, ASIC was concerned that Finnia’s TMD did not adequately describe the objectives, financial situation and needs of consumers likely to be in the target market in an objective manner. Instead, it primarily focussed on the features of the offer and consumers’ understanding of the offer.
ASIC also found that the TMD for the prospectus did not meet appropriateness requirements under the design and distribution obligations (DDO) because the distribution conditions were unlikely to result in the product being distributed to consumers in a suitable target market.
Finnia’s distribution conditions were limited to identifying investors who had already registered with the issuer and were willing to meet the minimum investment of $25,000.
ASIC said it expected Finnia to consider the concerns raised about the TMD and take steps to ensure compliance.
ASIC would consider making a final order if its concerns were not fully addressed in a timely manner and Finnia would have an opportunity to make submissions before a decision is made about any final stop orders.
ASIC previously placed a separate interim stop order on the same prospectus due to disclosure concerns.
AUTHOR
Laura Dew
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