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Exemption certificates for underwriters [GN26]

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Latest update: 1 July 2016

Foreign persons are required to give notice to the Treasurer for each notifiable action where threshold values are met and the acquisition is not otherwise exempt. Notifiable actions generally include acquiring a direct interest, securities in a land entity, or a substantial interest in securities in an Australian entity. This also applies for foreign persons, such as financial institutions, who make such acquisitions in their ordinary course of an underwriting business.

Under section 42 of the Foreign Acquisitions and Takeovers Regulation 2015 (Regulation), a foreign person, including a foreign government investor, may apply for an exemption certificate if they propose to acquire interests in securities through their business of underwriting. The Treasurer may give such a certificate, if satisfied that the acquisition of the kinds of interests by the foreign person is not contrary to the national interest. Actions covered by the certificate do not need to be notified to the Treasurer provided the conditions (if any) specified in the certificate are met.

  • ‘Underwriting’ refers to the practice of entering into an agreement whereby a person, the underwriter, agrees to take up any unsubscribed portion of an issue (for example, an initial public offer or subsequent rights issue) or sale of securities (for example, a major security holder selling a stake through a book build), as well as the subsequent take-up of unsubscribed securities.
    • Underwriting includes sub-underwriting.
  • Acquisitions by a person in the ordinary course of an underwriting business would normally be temporary in nature with no intent to control the entity.

This Guidance Note sets out the factors that will typically be considered, outlines the types of conditions that a certificate may include and gives an overview of the information to be provided when making an application.

General guidelines

When may an exemption certificate be applicable?

The certificate is a mechanism available to minimise the regulatory burden of foreign investment screening that would otherwise apply to each acquisition covered by a certificate. Certificates for underwriters would generally cover separate acquisitions of securities in different entities by an underwriter over a specified period.

Who is eligible for a certificate?

A foreign person who is a financial services licensee authorised under the Corporations Act 2001 (Corporations Act) to underwrite (including sub-underwrite) securities (‘foreign underwriter’) and who proposes to acquire interests in securities that are likely to lead to more than one notifiable action over a specified period may apply for a certificate.

Certificates will generally only be given to a person involved in underwriting as defined for the purposes of the Corporations Act, or a subsidiary of such a person. Under section 911A of the Corporations Act, anyone carrying on a financial services business in Australia must hold an Australian Financial Services Licence (AFSL). Typically the person will need to be a holder of an AFSL that extends to underwriting.

What acquisitions may be covered by a certificate?

In addition to securities in an entity generally, the certificate may also cover the acquisition of securities in a land entity and the acquisition of securities in an agribusiness.

A certificate would typically cover acquisitions of securities in entities operating in any sector. However, some limits may apply (for example, limiting the certificate to listed entities, Australian entities or excluding sensitive businesses).

A certificate will generally specify the period during which acquisitions can be made. While a default period of 12 months will apply, certificates can be issued for shorter or longer periods depending on the circumstances.

Conditions

An exemption certificate will generally be subject to a reporting condition. Other conditions will be considered on a case-by-basis and may apply in only particular circumstances, including:

  • limiting the entities in which securities may be acquired (for example, by sector, location, size or listing status);
  • limiting the exercise of the voting rights attached to securities acquired under the certificate:
    • For example, by limiting the matters on which voting rights can be exercised, by imposing a percentage ceiling on the voting rights that can be exercised, or both;
  • limiting the parties who the securities may be sold to;
  • requiring the sell down of securities acquired under the certificate within a specified period (for example, 12 months):
    • In addition, the method of sale or the size of individual parcels of securities may be limited; or
  • specifying the maximum value of securities that may be acquired in an entity or in total under the certificate.

Reporting

Foreign persons granted an exemption certificate must report periodically on the acquisitions made during the period under their certificate, as per their specific reporting condition. The frequency of reporting will depend on factors such as the period the certificate is in force and the nature of the certificate holder and the acquisitions covered by the certificate. As part of this reporting, a certificate holder will also need to confirm that all foreign persons covered by the certificate are meeting all ongoing conditions attached to the certificate and earlier individual approvals and certificates.

Information that needs to be supplied in the application

Applications for exemption certificates are considered on a case-by-case basis. To facilitate this, applications need to provide the following (additional information may also be requested during the assessment):

  • Information on who they wish for the certificate to cover, including:
    • ultimate ownership of each person (including if a foreign government investor);
  • details of the applicant’s business activities in Australia, including:
      • activities of their group (if part of a broader group operating in Australia);
      • their underwriting activities (for example, general approach; information on the frequency, size, nature of the underwriting undertaken in recent years and expected over the period for which the certificate is requested; approach to exercising or not rights attached to securities acquired through underwriting; and approach to holding or disposing of securities acquired through underwriting).
    • if there will be more than one entity to be covered by the certificate, information on each entity’s role in the business; and
    • Australian Financial Services Licence (AFSL) details, along with information on any other applicable licences.
  • The applicant’s preferred certificate length and parameters.
  • Confirmation of good compliance standing for foreign investment purposes (that is, that the applicants and any other entities with common ultimate ownership of securities are meeting all conditions that are applicable for earlier acquisitions or certificates).
  • Acknowledgement that the applicant will comply with any condition(s) if imposed on any certificate granted.

Fees

An application to acquire an exemption certificate will not be considered until the relevant application fee has been paid in full.

For more information, see Guidance Note 30.

Penalties

Strict penalties (including civil and criminal penalties) may apply for breaches of Australia’s foreign investment rules.

Further information

Further information is available on the FIRB website or by contacting +61 2 6263 3795.


Important notice: This Guidance Note provides a summary of the relevant law. As this Note tries to avoid legal language wherever possible it may include some generalisations about the law. Some provisions of the law referred to have exceptions or important qualifications, not all of which may be described here. The Commonwealth does not guarantee the accuracy, currency or completeness of any information contained in this document and will not accept responsibility for any loss caused by reliance on it. Your particular circumstances must be taken into account when determining how the law applies to you. This Guidance Note is therefore not a substitute for obtaining your own legal advice.