Flexibilities for Issuance of Convertible Notes to PE & VC Firms
The Securities Commission (SC) has announced flexibilities for businesses to issue convertible notes to private equity and venture capital firms that are registered with the SC. With these flexibilities, the SC aims to benefit startups, micro, small & medium enterprises as well as small-cap and mid-cap companies in their fundraising exercises.
Generally, these flexibilities allow issuers of eligible convertible notes to lodge such issuance directly with the SC without appointing an investment bank as principal adviser. Lodgement fees for such eligible convertible notes are also waived.
Presently, these flexibilities are only available to conventional convertible notes that meet specific eligibility criteria. The SC has announced that these flexibilities will also be made available for eligible Islamic convertible notes (sukuk) but this will be operationalised in future.
What are the eligibility criteria?
The convertible notes (“Eligible Convertible Notes“) must meet the following criteria in order to be eligible for the flexibilities:
- The issuance and offering must be made solely to a private capital or venture capital corporation or management corporation that is registered with the Securities Commission.
- The convertible notes must not be transferable save and except to private capital or venture capital corporations or management corporations that are registered with the Securities Commission.
- The convertible notes may only be convertible into shares of the issuer.
- The tenure of the convertible notes must not exceed 7 years from the date of issuance.
What are the specific lodgement requirements for Eligible Convertible Notes?
The requirements applicable to Eligible Convertible Notes are as follows:
- The issuer must lodge all of the following information and documents to the SC prior to issuance:
- A cover letter that is signed by at least one of the directors of the issuer, specifying the purpose of lodgement, the name of the issuer and the name of the convertible notes.
- A completed prescribed lodgement form containing the corporate information of the issuer, details of the convertible notes, declaration of conflicts of interest (if any) and contact information of the issuer.
- All required lodgement must be made by the issuer of the Eligible Convertible Notes by way of email in text searchable, readable Portable Document Format (PDF), or in any other manner as may be specified by the SC.
- The issuance of Eligible Convertible Notes must be made within 60 business days from the date of lodgement. Where they are not issued, an issuer must submit a cancellation notice to the SC via email within 14 business days from the date of cancellation of the Eligible Convertible Notes.
The SC may request from the issuer any other document where necessary in relation to the issuance of convertible notes.
All original hardcopies of the information lodged are not required to be submitted to the SC but must be kept for the issuer’s record and be made available upon request by the SC.
What are the exempted requirements that ordinarily apply to corporate bonds & sukuk?
Eligible convertible notes that meet the eligibility criteria above are exempted from the following requirements:
- The requirement that the lodgement party identifies all other responsible parties accountable or responsible in the lifecycle of an unlisted capital market product, and when such a responsible party ceases to be accountable or responsible for any of the roles or responsibilities relating to such a product, the requirement that the lodgement party identifies a new responsible party to undertake such role and responsibility.
- The requirement that all responsible parties for an unlisted capital market product must declare their respective roles and responsibilities in relation to such a product.
- The requirement that the lodgement party must lodge the above information relating to responsible parties.
- The requirement that in the event the lodgement party is replaced by a new party, the new party must undertake the roles and responsibilities of the original lodgement party and be responsible for any information or document lodged subsequent to its appointment.
- The requirement that any lodgement of information or document must be done through the online system specifically for the Lodge and Launch framework.
- The specific requirements ordinarily applicable to corporate bonds and sukuk under SC’s Lodge & Launch framework, including lodgement requirements and continuous obligations that apply to issuers of such corporate bonds and sukuk.
- The requirement that lodgement must be accompanied by the fees prescribed by the SC.
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