Following discussions between the ASX and ASIC about the steps that could be taken to improve the clarity of the names and descriptors used by issuers in relation to their retail debt and hybrid securities, the ASX has released a consultation paper on a proposed new ASX Listing Rule guidance note on naming conventions for debt and hybrid securities.
The ASX Listing Rules do not currently recognise “hybrid securities” as a separate category of securities:
- most equity instruments are characterised as equity securities under the Listing Rules, even where they may have debt-like features (such as redeemable preference shares) and therefore might be better described as “hybrid securities”.
- a debt instrument (such as a note or bond) that is convertible into an equity instrument (such as a share) is characterised as an equity security, even though in ordinary financial parlance it might be better described as a “convertible debt security” or a “hybrid security”.
The draft guidance note covers:
- When should a security be described as a “debt security” and when should it be described as a “hybrid security”?
- What securities can be described as “bonds” or “notes” without any further descriptors?
- What securities can be described as “mortgage debentures” or “debentures” without any further descriptors?
The guidance note takes into account the Corporations Act 2001 (Cth) rules on when debt securities may be called “debentures” or “mortgage debentures” and the ASIC class order on when a debt security may be called a “secured note”. The Corporations Act otherwise leaves it to the issuer to determine the name or description it wishes to give to its securities, subject to the obligation not to call or describe them as something that is misleading or deceptive.
The draft guidance note also suggests when the following descriptors should be used:
- high denomination
- perpetual
- extendable
- redeemable or callable
- demand or on-demand
- long-term
- variable rate
- reducing rate or step-down
- zero coupon or discounted
- optional interest
- deferrable
- subordinated
- converting
- convertible.
