Companies seeking to raise debt finance take advantage of listing debt securities on ASX for many of the same reasons that they list shares. These include:
Access to capital for growth; Diversifying funding sources from traditional bank lending; Higher public and investor profile; and
Access to a broad spectrum of investors – both institutional and retail.
ASX provides an efficient, transparent
interest rate securities market utilising its existing trading and
settlement mechanisms. Companies chose to raise debt finance through
the ASX Interest Rate Securities (IRS) Market to take advantage of:
1. Funding diversity
In a world where funding diversity is
almost as critical as the interest cost of debt raised, issuing debt on
the ASX IRS market diversifies an organisation’s funding exposure away
from bank lending and/or offshore markets.
2. Reduced costs and prospectus requirements
With changes to prospectus requirements and
technology advances, many of the previous costs associated with a debt
raising have been significantly reduced. In May 2010, ASIC provided
exemptions for issuers of vanilla corporate bonds from many of the more
onerous prospectus requirements.
3. Liquidity and term flexibility
Debt securities quoted for trading on ASX
are accessible to all investors, which can greatly increase the
potential market for an issuer’s securities;
Having alternatives to more traditional
funding sources provides greater flexibility for organisations to match
their borrowing requirements with investor demand;
4. Investors seeking longer term debt whilst still retaining flexibility
Many retail investors have a longer
investment horizon than that offered by bank term deposits whilst still
desiring the flexibility of not being unable to liquidate their
investment. With an aging population and expanding pool of self
managed super, the demand from investors for attractive long term
interest rate securities is expected to only grow.
These factors, combined with ASX’s efficient
and cost effective trading and settlement system, provide a viable
funding alternative for borrowers looking to raise term debt.
These securities are typically issued on an excluded offer basis (i.e. without a prospectus) to sophisticated/professional investors, pursuant to section 708 of the Corporations Act. To satisfy regulatory compliance and investor requirements wholesale corporate debt issuers are often required to list their securities on an internationally recognised exchange. ASX has a streamlined and internationally competitive listing process for wholesale debt issuers.
Listing on ASX:
Satisfies the 'public offer test' for interest withholding tax exemption (see section 128F(5) of the Income tax Assessment Act 1936 (Cth)) - domestically issued bonds are now marketable overseas, so long as certain conditions are met;
Typically satisfies overseas investors whose mandates require securities to be listed;
Is a timely and efficient process; and
Is cost effective when compared to other exchanges. Both listing and legal fees are in $A.
The ASX Group's activities span primary and secondary market services, including capital formation and hedging, trading and price discovery (Australian Securities Exchange); central counterparty risk transfer (ASX Clearing Corporation); and securities settlement for both the equities and fixed income markets (ASX Settlement Corporation).