Where to List Bonds Issued in the International Markets by Asian Corporates?

Transcription

1 May 2012

2 BRIEFING NOTE Where to List Bonds Issued in the International Markets by Asian Corporates? Introduction In this briefing note we highlight some of the factors which determine the choice of listing venue for bonds issued in the international markets by Asian corporates. We also provide a summary comparative table of the four principal listing venues, namely the London Stock Exchange ( LSE ), the Luxembourg Stock Exchange ( Lux SE ), the Singapore Exchange Securities Trading Limited ( SGX ) and the Stock Exchange of Hong Kong ( HKEx ). Both the LSE and the Lux SE operate a number of different markets. For the purposes of our comparison, we look only at the main trading markets, namely the LSE s Main Market and the Lux EEA Market (together, the PD-regulated markets ), and the exchange-regulated markets, being the LSE s Professional Securities Market ( PSM ) and the Lux SE s Euro MTF (Multilateral Trading Facility) (together, the Exchange-regulated markets ), both of which provide less onerous listing venues for professional-targeted listings. In Asia, as of November 11, 2011, the HKEx adopted a new approach to regulate the listing of debt securities offered only to professional investors. 1 in that the listing authority no longer reviews the substantive contents of the disclosure documents. This approach mirrors that of the SGX, The scope of the comparison is limited to the rules applicable to a listing of corporate bonds issued to professional investors (as opposed to a public offering to retail investors) and to bonds held in global or dematerialized form. Choice of listing venue In recent years, there has been a high degree of convergence in the requirements of listing venues. This has been mainly driven by competition among exchanges and, in the case of the European Union ( EU ) venues, EU harmonization of securities laws. Competition between the LSE and the Lux SE in the 1980s and 1990s was characterized by some as a race to the bottom with some pressure on exchanges to relax listing requirements in order to attract business. In the past, disclosure was mainly determined by reference to listing requirements but is now largely informed by international market practice and standards. The more recent changes by the SGX and HKEx to simplify their disclosure requirements have not led to any significant reduction in the quality or extent of disclosure. Some of the main factors which appear to affect the choice of listing venue are listed below. These include both objective considerations (listed first) and subjective considerations (which may be more important in practice): 1 According to the HKEx, 32 issues of debt securities were listed and approved in the period from 11 November 2011 to 30 March

3 Information disclosure requirements. The listing rules of each stock exchange set out the requirements regarding the information which must be disclosed in the listing document and the continuous disclosure requirements. There is divergence in this regard. The HKEx and SGX simply set out a threshold disclosure standard, namely that the listing document must contain such information that a professional investor would customarily expect it to contain. In comparison, issuers listing on the LSE and the Lux SE must comply with a detailed listing checklist. Service standards. The speed and certainty of the listing process is a key factor in the choice of listing venue. The promptness with which the listing authorities can be expected to handle the listing application is often a determining factor. Consistency of approach. The predictability of disclosure requirements for the listing document and continuing obligations. For example, the Lux SE has in the past been criticized for not following prior precedents based on waivers given on a case-by-case basis, but which were understood in the market to represent its then current policy. Characterisation of securities as debt or equity. Obtaining treatment as debt will simplify the listing requirements. For example, the Lux SE has in the past treated certain hybrid securities with equity characteristics as debt for listing purposes. The LSE adopts a more traditional definition of what qualifies as debt. Stock exchange on which other securities of the issuer are listed. Other things being equal, it simplifies ongoing disclosure requirements to list bonds on the same exchange on which the shares and other securities of the issuer are listed. Costs. The costs associated with the initial listing application and the ongoing maintenance of the listing is also a factor in deciding where to list. Nexus with the jurisdiction of the listing venue and future changes in law and regulation. A listing creates exposure to the securities laws of the relevant jurisdiction and to future changes in law and regulation in that jurisdiction. For example, a listing on an EU stock exchange exposes issuers and investors to the insider dealing and market abuse laws and financial disclosure requirements, all of which have recently been subject to review by the EU regulators. Reputation of the listing venue. Historically, London and Luxembourg were the listing venues of choice for Asian issuers. From 2003 onwards, with the implementation of the EU s Financial Services Action Plan, and in particular the Prospectus Directive ( PD ) and related directives, non-eu stock exchanges began to attract greater interest as Asian issuers sought relief from the onerous requirements and uncertainties of the EU directives. The non-eu stock exchanges began to promote themselves as credible listing venues. The rise of Asia as a source of capital has accelerated this trend. Precedent and familiarity. Issuers in particular jurisdictions, and their advisers, often prefer to list on the venue with which they are most familiar unless there has been a change in regulation. Because of the generality and summary nature of this memorandum, the information provided herein may not be applicable in all situations, does not constitute legal advice and should not be acted upon without specific legal advice based on particular situations.

4 Table of Comparison This table highlights certain differences and similarities for issues of bonds in the international markets. It is not a comprehensive list of all such features but focuses on those which may be relevant in typical transactions. A. LISTING REQUIREMENTS APPROVAL AND REGULATORY AUTHORITIES The HKEx The SGX, which regulates the listing and trading of securities and is supervised by the Monetary Authority of Singapore ( MAS ). London o The LSE o The United Kingdom Listing Authority ( UKLA ). This forms part of the Markets Division within the Financial Services Authority ( FSA ) 3 and is responsible for the approval of prospectuses and listing of securities. The same as for the PD-regulated markets Luxembourg o The Lux SE o The Commission de Surveillance du Secteur Financier ( CSSF ) is responsible for the review and approval of prospectuses. 2 The PD differentiates securities with a minimum denomination of 50,000 or over, which qualify for the wholesale regime of the PD, and those with a minimum denomination of under 50,000, which fall under the retail regime of the PD and are subject to more onerous disclosure requirements. The PD was amended on 31 December 2010 by an amending directive (2010/73/EU) ( Amending Directive ), which increases this minimum denomination threshold to 100,000. This table relates only to issues of wholesale securities. 3 In June 2010, the UK government announced its plans to abolish the FSA in its current form and to establish three new regulatory bodies in early 2013: the Financial Policy Committee ( FPC ), the Prudential Regulation Authority ( PRA ) and the Financial Conduct Authority ( FCA ). 2

5 APPLICABLE REGULATIONS The Listing Rules. ules/rulesandguidelines.htm Securities and Futures Ordinance. The Listing Manual of the SGX. The Securities and Futures Act and its regulations. The Monetary Authority of Singapore Act. The Companies Act. The PD and the Prospectus Regulation (809/2004) provide a single regime throughout the EU governing the content, format, approval and publication of prospectuses 4 (see ri=oj:l:2003:345:0064:0064:en:pdf) The Transparency Obligations Directive (2004/109/EC) ( TOD ). The Markets in Financial Instruments Directive (2004/39/EC) ( MiFID ). The Market Abuse Directive (2003/6/EC) ( MAD ). 5 London o The PD and TOD are implemented in the UK through the Prospectus Regulations (SI 2005/1433) and the FSA s Prospectus Rules, and Disclosure and Transparency Rules, which form part of FSMA. o /companies-and-advisors/mainmarket/rules/regulations.htm The requirements of the PD and TOD do not apply, though certain provisions of the Directives may apply by virtue of the listing rules of the relevant exchange. The Market Abuse Directive (2003/6/EC) ( MAD ). London o The listing rules of the LSE and UKLA. o om/companies-andadvisors/psm/ongoingobligations/ongoingobligations.htm o andbook/d85 Luxembourg o The listing rules of the Lux SE. o flowid=pagestatiqueflow&content =services/admissi on.jsp&lang=en 4 Member states are required to implement the amendments introduced by the Amending Directive by 31 July On 1 November 2010 the UK government announced that it would introduce two elements of the Amending Directive early: the increase in the threshold for an offer of securities for which a prospectus is required from 2.5 million to 5 million, and the increase in the minimum number of investors for which a prospectus is required, from 100 to 150 investors. These changes were made, by way of amendments to the Financial Services and Markets Act 2000 ( FSMA ), by the Prospectus Regulations 2011 (2011/1668) and came into effect on 31 July On 20 October 2011, the European Commission published proposals to reform the market abuse regime, by replacing MAD with a Regulation on insider dealing and market manipulation and a Directive on the corresponding criminal sanctions. The proposed Regulation will have direct effect and will apply from 24 months after its entry into force. Member states will have two years to transpose the corresponding Directive on the criminal sanctions into national law. 3

6 Luxembourg o The PD was implemented in Luxembourg under the law on securities prospectuses of 10 July o The TOD was implemented in Luxembourg under the law and related regulation of 11 January o wid=pagestatiqueflow&content=soci ete/manuel.jsp GENERAL DISCLOSURE REQUIREMENTS The listing document must contain the information that the professional investors whom an issuer is offering the debt securities would customarily expect it to contain. The HKEx will not review the substantive contents of such disclosure. In addition, the disclosure shall include (a) a responsibility statement, (b) a disclaimer statement, and (c) a statement limiting the offering document to professional investors only. When the offering of the bonds is made primarily to sophisticated or institutional investors, a prospectus is not required, but the disclosure document must contain the information that such investors would customarily expect to see in such documents. There are otherwise no specific disclosure requirements set out in the Listing Manual. The prospectus must contain the information necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses, and prospects of the issuer and any guarantor, as well as the rights attaching to the securities. The information must be presented in a form which is comprehensible and easy to analyze and must be prepared having regard to the particular nature of the securities and the issuer. Issuers of debt securities on the PSM do not prepare a prospectus, but prepare listing particulars, which are governed by the UKLA Listing Rules. The listing particulars must contain the minimum information required under the wholesale regime of the PD. For the Euro MTF, the document to be prepared is still labeled a prospectus, and issuers can choose to follow either the requirements of the PD or the rules of the Lux SE. 4

7 FINANCIAL DISCLOSURE REQUIREMENTS There are no particular requirements regarding the GAAP of the issuer or what financial information must be included. There are no particular requirements regarding the GAAP of the issuer or what financial information must be included. Issuer's accounts do not have to be prepared in accordance with IFRS (or its equivalent 6 ). Where the issuer s accounts are not equivalent to IFRS, a description of the differences must be set out in the prospectus. As a minimum, the most recent year s financial information must be presented in a form consistent with that which will be adopted in the issuer s next published annual financial statements. Interim financial information is not required. As for the PD-regulated markets, issuer s accounts do not have to be prepared in accordance with IFRS (or its equivalent). Where the issuer s accounts are not equivalent to IFRS, a description of the differences must be set out in the prospectus. As a minimum, the most recent year s financial information must be presented in a form consistent with that which will be adopted in the issuer s next published annual financial statements. Interim financial information is not required for the PSM but must be included for the Euro MTF if more than nine months have elapsed since the year end. MINIMUM TRADING RECORD A corporate issuer must have produced audited accounts for the two years before the listing application made up to a date at most 15 months before the intended date of the listing document with certain exceptions, including: No trading record or accounts are required if at least 80% of the debt securities are subscribed by institutional or sophisticated investors, or where the issuer has equity securities listed on the SGX. The issuer should have at least a two-year trading record and should have independently audited accounts covering the past two years (or such shorter period as the issuer has been in operation). The issuer should have at least two years of audited financial information (or such shorter period as the issuer has been in operation). (a) it is a state corporation; or (b) its shares are listed on the HKEx. 6 US, Japan, China, Canada and South Korea GAAP are equivalent for this purpose. 5

8 LIABILITY FOR INFORMATION CONTAINED IN THE PROSPECTUS The listing document must contain a responsibility statement. There is no requirement for a responsibility statement (although international market practice will require one to be included). The prospectus must contain a responsibility statement. The PD requires that responsibility for the information given in a prospectus attaches at least to the issuer, the offeror, the person requesting admission to trading or the guarantor. Section 90 FSMA provides that any person responsible for listing particulars is liable to pay compensation to a person who has (a) acquired securities to which the particulars apply and (b) has suffered loss as a result of (i) any untrue or misleading statement in the particulars; or (ii) the omission from the particulars of any matter required to be included. The same as for the PD-regulated markets. MINIMUM DENOMINATIONS Minimum denomination of HK$500,000 (or equivalent in other currency) None. 7 50, No minimum denomination. B. TIMETABLE AND MECHANICS OF THE OFFERING LISTING AGENT/ PAYING AGENT Law firms may handle the listing procedures. An issuer must appoint two authorised representatives to communicate with the HKEx. No paying agent in Hong Kong is required. Law firms which practice Singapore law may be appointed to act as listing agent. The issuer is required to appoint a paying agent in Singapore upon the issue of the bonds in definitive form. Law firms may be appointed as authorized agents to submit the documents to, and negotiate with, the UKLA. For the purposes of the Lux EEA market, a Luxembourg listing agent must be appointed to advise the issuer (or lead manager) on the listing process, and to The listing agent/paying agent requirements are the same as for the regulated markets. 7 The SGX stipulates a minimum board lot for trading on the SGX. However, this does not prevent denominations from being lower than that amount. 8 To be increased to 100,000 pursuant to the Amending Directive. 6

9 liaise with the CSSF or Lux SE. A paying agent must be appointed in the relevant jurisdiction in which the bonds are listed and admitted to trading. TIMETABLE AND MECHANISM For routine applications, the HKEx aims to issue a Listing Eligibility Letter five days after it receives the application. 9 The Listing Eligibility Letter is valid for three months from the date of issue. Approval in principle is granted as soon as practicable after receipt of a complete application for listing, and typically within one week or less. The prospectus should be in as close to final form as possible and submitted to the relevant listing authority at least 20 clear business days before the desired listing date in the case of new applicants, or transactions of a complex nature, and at least 10 clear business days before in all other cases. The UKLA aims to provide comments within 5 clear business days of receipt of the initial draft of the prospectus, and within 3 clear business days of receipt for further drafts. The process for listing and admission to trading mirrors that under the PD. Timescales may be shortened where possible as a result of the less onerous disclosure requirements. For example, in respect of the PSM, debt can in practice often be listed within a week. Depending on the type of debt instrument the UKLA will provide the first set of comments within 4 days and 2 for any subsequent drafts. Comments provided by the listing authority must be incorporated into the prospectus, which is then resubmitted as many times as necessary to gain approval. The securities will then be admitted to trading by the relevant exchange. 9 In practice, for applications that do not involve novel features, the HKEx will usually issue the listing approval letter or eligibility letter (i) within one business day for issues involving a Hong Kong listed company and (ii) within two business days for other issuers. 7

10 C. CONTINUING OBLIGATIONS KEY CONTINUING OBLIGATIONS The issuer needs to publish information which (i) is necessary to enable investors to appraise its position; (ii) is necessary to avoid a false market in its securities; or (iii) may have a material effect on its ability to meet the obligations under its debt securities. An issuer must notify the HKEx as soon as possible if: (a) its debt securities are listed on another stock exchange; (b) it has repurchased and cancelled all of an issue of its listed debt securities; or (c) it has redeemed all of an issue of its listed debt securities prior to the maturity date. An issuer must provide the HKEx with its annual accounts and any interim report when they are issued. An issuer is exempt from this requirement if its securities are guaranteed by a body corporate in which case it must provide the guarantor s annual accounts and interim report. The issuer must: o Immediately disclose to the SGX any information which may have a material effect on the price or value of the securities or an investor's decision whether to trade; o Provide the SGX with copies of the issuer's annual report and all annexed documents; o Release information to the SGX at the same time as such information is released to the home market. o Announce any redemption or cancellation of the securities, details of any interest payments to be made, amendments to the trust deed or trustee appointments. Inside information and significant transactions must be disclosed to the market as soon as possible. As regards the LSE, an annual report and accounts must be approved and published within six months of the year end. There is no equivalent requirement for the Lux SE. Annual financial statements must be audited. Half yearly reports are not required. The issuer must ensure equal treatment of all holders of listed debt securities of the same class in respect of all rights attaching to such securities. The requirements are the same as for the wholesale regime of the PDregulated markets. An issuer must provide the HKEx with a copy of any circular that that is sent to bondholders or to any trustee. An issuer must notify the HKEx in advance of any proposal to: 8

11 (a) replace a trustee for bondholders; or (b) amend the trust deed; or an issuer must not proceed with any proposed change until the HKEx has advised whether it will impose conditions for the change. D. LISTING EXPENSES Listing fees are capped at a range of HK$7,000 to HK$90,000 (approx. US$900 to US$11,600) depending on issue size and type. This is a one-off application fee; there is no annual fee. A single listing fee of S$25,000 (approx. US$20,000), which comprises an initial listing fee of S$15,000 and a listing perusal fee of S$10,000. The fee is payable prior to submission of the listing application to the exchange. No annual fee is payable to the SGX. London o The UKLA charges 2,750 for approval and vetting of the prospectus and 225 for the listing of the bonds. o The fee for admission to trading on the LSE is based on the face value of the security at the date of admission, up to a maximum of 4,200. o No annual fee is payable to the LSE. Fees are generally the same as for the PD-regulated markets. Luxembourg o Visa fee of 1500 o Listing fee of 600 o Annual fees range from between 285 and 800, depending on the issuer and the amount of debt securities issued. 9

12 E. ADDITIONAL REQUIREMENTS FOR CONVERTIBLE DEBT SECURITIES Convertible debt securities must be convertible into: (a) shares listed or to be listed on the HKEx or another stock exchange; or (b) depositary receipts listed (or to be listed) on the HKEx or another stock exchange; or (c) other assets that the HKEx has agreed in writing are acceptable. Convertible securities may be listed only if the underlying securities are (or will become at the same time): (a) a class of equity securities listed on the SGX; or (b) a class of equity securities listed or dealt in on a stock market approved by the SGX. However, where foreign convertible bonds are being offered to institutional or sophisticated investors only, and will be traded in a minimum board lot size of S$200,000 (or its equivalent) following listing, this requirement does not apply. Convertible securities may generally only be admitted to listing in London if the securities into which they are convertible are (or will become so at the same time) listed in London, or another regulated, regularly operating, recognised open market (which does not need to be an EEA-regulated market). However, the FSA may dispense with this requirement if it is satisfied that holders of the convertible securities have all the information necessary to form an opinion about the value of the underlying securities. An issuer of convertible debt securities must have a minimum three-year trading record and three years' audited accounts. As for the PD-regulated markets. 10

13 CONTACT US Melody He-Chen Hong Kong Tony Grundy Tokyo and Hong Kong (Hong Kong) (Tokyo) tgrundy@mofo.com John Moore Hong Kong johnmoore@mofo.com Ven Tan Hong Kong vtan@mofo.com