Dated at Wellington this 17th day of December 2007.
The Common Seal of the Securities Commission was affixed in the presence of:
Statement of reasons
This notice, which comes into force on the day after the date of its notification in the Gazette, amends the Securities Act (Rights, Options, and Convertible Securities) Exemption Notice 2002 (the principal notice).
The amendments largely retain the existing policy but—
extend the scope of the current exemption from section 37A(1)(a) of the Securities Act 1978 (the Act); and
update the references to the New Zealand Stock Exchange with references to the securities market operated by New Zealand Exchange Limited (NZX); and
amend some current conditions requiring certain securities to be quoted on the New Zealand Stock Exchange to now provide for quotation on a securities market operated by either NZX or Australian Stock Exchange Limited (ASX); and
add a further exemption, from section 37A(1)(b) of the Act (so far as it relates to investment statements), subject to conditions.
The conditions relating to the new exemption from section 37A(1)(b) vary, depending on whether the holder of a convertible security has a right to elect whether to convert the security. For securities that give their holders a right of election, the conditions include that the investment statement must include various warning statements, and that the issuer must make a pre-conversion statement available between 5 and 10 working days before the earliest date on which an election to convert may be made. For securities that do not give their holders a right of election, the conditions require more extensive warnings in the investment statement, but do not require a pre-conversion statement.
Issuers who have properly relied on the principal notice prior to its amendment by this notice will not be affected by the amendments. The Securities Commission considers it is appropriate to amend the notice for the following reasons:
(a) the extension of the exemption from section 37A(1)(a) of the Act for new securities, to include circumstances where an application for quotation of securities of the same class as the new security has been made at the time of the offer of the convertible security, is consistent with the policy of the Commission in relation to convertible securities. The effect is that the exemption will now apply to initial public offerings where both the convertible securities and securities of the same class as securities into which convertible securities will convert are the subject of an application for quotation at the time of the offer of the convertible securities:
(b) the extension of the principal notice to permit the convertible security, new security, and securities of the same class as the new security to be quoted on a securities market operated by either NZX or ASX is consistent with the policy of the Commission to reduce compliance costs associated with trans-Tasman offers of securities. The Commission recognises that subscribers of convertible securities will have the benefit of the continuous disclosure regime operated by ASX, which is similar to that operated by NZX. Accordingly, ongoing disclosure will be made of material information relating to the convertible securities, the securities of the same class as the new security, and the issuer of these securities:
(c) in granting an exemption from section 37A(1)(b) of the Act for new securities, as that provision applies to investment statements, the Commission recognises that, as a practical matter, the investment statement relating to convertible and new securities may well have become false and misleading at the time of the allotment of the new security. The effect of the exemption is that a new investment statement will not need to be prepared at the time of the allotment of the new security, provided the conditions imposed under this notice are complied with:
(d) for convertible securities where the holder has no right to elect whether to convert, the Commission considers that disclosure by way of warning prior to subscription for the convertible securities is more useful to subscribers than the provision of a new investment statement at the time of conversion, given that holders cannot elect whether to convert anyway:
(e) for convertible securities where the holder does have a right to elect to convert, the Commission considers that subscribers will be adequately protected by a combination of warning statements prior to subscription and a pre-conversion statement that identifies (among other things) adverse circumstances that make the investment statement false or misleading by reason of failing to refer, or give proper emphasis, to those circumstances, and the effect of those circumstances.