Focus: Disclosure obligations of infrastructure entities to retail investors
19 April 2011
In brief: The Australian Securities and Investment Commission has released an additional consultation paper and a draft regulatory guide on disclosure obligations of infrastructure entities to retail investors, and is now seeking further submissions. Partners Andrew Mansour (view CV) and Campbell Davidson and Lawyer Michael Tollman report.
- Previous consultation – CP134
- ASIC seeks comments on the following proposals
- Next steps
How does it affect you?
The following key proposals will impact on disclosure by infrastructure entities to retail investors if adopted.
- Broad definitions of 'infrastructure entities' and 'infrastructure assets' are being proposed, which is likely to capture an expansive range of infrastructure funding.
- Disclosure will be required against benchmarks and policies that target key risk areas. These will be on an 'if not, why not' basis, which means that if a particular benchmark is not met, the infrastructure entity will have to explain how an issuer is able to deal with the business factor or concern underlying the benchmark.
- Increased disclosure principles and obligations to be included in Product Disclosure Statements (PDS) and prospectuses issued under part 7.9 and chapter 6D of the Corporations Act 2001 (Cth). There may also be ongoing disclosure obligations.
- Flexibility may apply to certain infrastructure entities that hold investments in wholesale or overseas infrastructure entities and that may not have access to all relevant information.
The Australian Securities and Investment Commission (ASIC) recently released a further consultation paper and a draft regulatory guide (CP154) on disclosure obligations of infrastructure entities to retail investors.
After considering submissions made in response to Consultation Paper 134 (CP134), ASIC now seeks further submissions on the clarification of issues from earlier consultations, and on its proposed benchmarks and disclosure principles. After considering the submissions, ASIC proposes to release a regulatory guide that will finalise its policy on disclosure obligations of infrastructure entities to retail investors.
Submissions must be lodged with ASIC by Friday, 6 May 2011.
In April 2010, ASIC released CP134, seeking feedback from stakeholders in response to significant capital losses suffered by investors in infrastructure entities and on the increased disclosure obligations that ASIC proposed.
CP134 identified examples of aspects of infrastructure entities that required further disclosure. ASIC included various methodologies to determine some of the additional disclosure obligations in CP134, such as: a breakdown of debt maturities, foreign exchange and/or interest rate risk, methods to calculate gearing ratios and net debt/EBITDA ratios. These methodologies are not included in CP154.
ASIC has now proposed a number of changes to address comments received in submissions to CP134 and consultation meetings. CP154 includes on further discrete issues that have crystallised since receiving comments on CP134, in anticipation of finalising its regulatory guide on infrastructure entities improved disclosure obligations to retail investors in the third quarter of 2011.
ASIC intends to finalise its policy on infrastructure entities improved disclosure obligations to retail investors, following submissions on the following specific aspects of the proposed regulatory guide:
Definition of 'infrastructure entity' and 'infrastructure asset': ASIC proposes to adopt one of two definitions after considering submissions on the preferred definition. One difference with the alternative definitions is whether an infrastructure entity is defined by reference to its primary strategy or investment mandate as opposed to having at least 70 per cent of the value of its non-cash assets, derived from infrastructure assets. Types of assets potentially captured include transport, gas, power, telecommunications, water and social infrastructure facilities.
Benchmarks and disclosure principles: ASIC seeks to know whether businesses agree with the amended benchmarks and disclosure principles, the compliance costs associated with these benchmarks and disclosure principles, additional (quantitative) costs in disclosing against each benchmark and disclosure principles and whether there are more relevant benchmarks and disclosure principles that should be included.
Proposed benchmarks include: disclosure of corporate governance policies, corporate structure and management, compliance with the ASX listing rules, management's incentive based remuneration derived from the infrastructure entity's performance, approved director cashflow forecasts, material issues identified in an entity's base case financial model and whether actual performance achieves the original disclosed forecasts.
Disclosure principles include key relationships, management and performance fees, details of related-party arrangements, target and actual financial ratios, anticipated capital expenditure and material debt maturities, policies on foreign exchange and hedging and whether the actual foreign exchange and/or interest rates conform with these policies, certain details of base-case financial models, availability of significant infrastructure valuations to investors, distribution policy and an explanation as to any variances between an infrastructure entity's portfolio diversification policy and actual portfolio diversification.
PDS and prospectus disclosure: ASIC seek submissions on the form and method of disclosure proposed in PDSs and prospectus disclosure, including any ongoing disclosure obligations that may require supplementary PDSs or prospectus disclosure.
ASIC proposes that infrastructure entitles will be required to address the benchmarks and apply the disclosure principles in new PDSs or prospectuses dated on or after 1 January 2012. Existing PDSs or prospectuses dated before 1 January 2012 will need to be replaced with a supplementary PDS or prospectus by the first day of the infrastructure entity's next financial year that begins on or after 1 January 2012.
Submissions are due by 6 May 2011 and ASIC proposes to release a regulatory guide taking submissions into account in the third quarter of 2011.
- Andrew MansourPartner,
Ph: +61 2 9230 4552
- Ren NiemannPartner,
Ph: +61 7 3334 3005
- Emma WarrenPartner, Sector Leader - Infrastructure & Transport,
Ph: +61 3 9613 8856
- Michael HollingdalePartner,
Ph: +61 8 9488 3708