For SMSF investors, one of the more significant Federal Budget announcements is a move intended to boost business lending competition.
According to the announcement, the Australian Securities and Investments Commission (ASIC) will permit listed entities meeting specific criteria to issue bonds to retail investors using a simplified process. I am assuming SMSF
The Government claims this will: “help develop a deep and liquid Australian corporate bond market, making it easier for Australian businesses to diversify their funding sources as an alternative to borrowing from the bank.”
The decision-makers in Canberra believe that this alternative source of funding will put competitive pressure on bank lending rates to business, and reduce the amount of wholesale funding raised from international capital markets.
The issuers of these corporate bonds will be able to provide a shorter prospectus but it must clearly set out the key information retail investors need to make an informed
Key information includes:
- the terms of the offer
- the ability of the bond issuer to meet its interest and repayment obligations.
Businesses/companies can only use the new streamlined process if they satisfy the following conditions:
- Company is listed and has a good continuous disclosure history, for example, they have not been suspended for more than five days over a period of 12 months;
- The bonds offered are simple, that is, they are ‘vanilla’ bonds and are offered to retail and wholesale investors at the same price
- The size of the bond offer is at least $50 million.
Individuals who invest in these corporate bonds will also be eligible for the 50% tax discount on the first $1,000 of interest income on this investment, although I doubt that SMSF trustees satisfy the definition of ‘individual’ (see separate article),
You can find more information on these corporate bonds by reading this Federal Government media release.
