House of Representatives

Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2014

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

[1]
This relief is provided by ASIC Class Order 10/321.

[2]
Source: BIS Quarterly Review , December 2013.

[3]
Released in November 2009.

[4]
'High quality corporate debt' is debt issued by corporate entities that have a high credit rating and is generally considered to be lower risk than debt issued by entities with a low credit rating.

[5]
If an entity has financial difficulties, clients who had invested in simple corporate bonds would rank with unsecured creditors such as service or trade providers in being paid.

[6]
Interest cover is the amount of the entity's earnings before interest and tax exceeds any interest liability the bond issuer has to the bond holders.

[7]
The working capital ratio is the entity's current assets divided by its liabilities. The working capital ratio indicates whether a company has enough short term assets to cover its short term debt. A ratio below 1 indicates negative working capital.

[8]
A depository interest framework enables legal ownership of the underlying bond to remain with the wholesale securities depository, avoiding the need to comply with all of the regulatory obligations when a bond is issued in the retail market.

[9]
In some cases the due diligence defence under section 731 of the Corporations Act, and other defences contained in sections 732 and 733 of the Corporations Act may be available.

[10]
Bond offers commonly range from $100 million to $300 million. Some bond offers can be $1 billion or more.

[11]
That is, in the middle of the range of commonly offered bonds.

[12]
Extract from NAB testimony to the Parliamentary Joint Committee on Corporations and Financial Services Inquiry into the Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2013.

[13]
With the issuance costs depicted in Table 2.

[14]
The organisations which made submissions were the ABA, Australian Institute of Superannuation Trustees, NAB, Self-Managed Superannuation Funds Professionals Association, SMSF Owners' Association, Stockbrokers' Association of Australia and one confidential submission.


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