Raining rules on debentures

Finance companies and others selling debentures will have to comply with two new sets of rules, one on what they must disclose in prospectuses and the other on what they can say in advertising.

The Australian Securities and Investments Commission on Wednesday published guidelines on disclosure and which apply from the beginning of December for the sale of new debentures. Existing issuers have until 1 March 2008 to comply.

The ASIC guidelines apply to issuers of unlisted securities. Issuers of ASX-listed securities are not affected by the new rules.

ASIC also published a consultation on advertising that is likely to have the force of law from some time next year.

As foreshadowed six months ago ASIC has settled on an "if not, why not" approach to improving disclosure. ASIC will require finance companies to address eight benchmarks in their disclosure.

These include disclosures on a financier's level of equity capital, liquidity, history and policy on rollovers, credit ratings (if any), some analysis of their loan portfolio, details of related party transactions, their policy on valuations and lending principles, and also their policy on balancing the maturity of their assets and the maturity of their liabilities.

ASIC said issuers must either state that they, and their products, meet the benchmark or that it does not meet the benchmark. In the latter case the issuer must "explain how and why the issuer deals with the business factors or issues underlying the benchmark in
another way."

Issuers must also hold sufficient cash to meet their projected cash needs over the next three months,  though they do not appear to face a compulsion to publish details.

A second set of rules, which are still subject to consultation, will dictate the content of advertisements for debentures. Terms such as "secure", "secured" and "guaranteed" will be banned and ASIC will expect publishers to police the content of advertisements.

Financiers will not be able to make any comparison with bank interest rates nor state they are suitable for any class of investor (such as retirees or self-managed superannuation funds).

If an issuer has a credit rating they will have to include that in the ad, and also include an explanation of credit ratings.