The Australian retail corporate bond sector has lagged in recent years but a new Bill is set to address some of the industry’s pitfalls. The Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2013 was released last week in an attempt to facilitate the growth of the retail corporate bond market in Australia. The Bill proposes a new “special disclosure” regime, the removal of presumptive civil liability for directors of issuers because of a defective prospectus and due diligence-type defences for certain criminal liabilities that can arise in connection with disclosure documents.

According to Herbert Smith Freehills partner Patrick Lowden, the Bill is more promise than detail at the moment. “There are changes to exclude simple corporate bond prospectuses from the detailed content requirements that are currently set out in the Corporations Act but there will be new content requirements specified in the regulations. We have not seen the regulations yet, so we don’t know how much easier it will indeed be,” he said. However, the removal of presumptive director liability for a defective prospectus detailed in the Bill is a move in the right direction according to Lowden, as this is something that has put corporate issuers off in the past.

Baker & McKenzie partner Guy Sanderson added that this change is a worthwhile reform in the move to increase retail bond offers. “It could mean that offer documents are prepared more efficiently by a company’s treasurer and executives without the need for as much personal involvement by directors in the process,” he said. “However, by excusing only the directors it raises the question of how underwriters and others involved in the offer are treated. If underwriters perceive that this merely shifts the liability burden onto them, then we expect that there will still have to be a due diligence process for the benefit of people other than the directors.”

These amendments have been in the pipeline for a while according to Lowden, and have come about as a result of the government’s desire to facilitate an important market, currently absent from the Australian financial landscape. “More and more we are seeing Australian corporates wanting to raise debt funding from capital markets going offshore, rather than the Australian market because the Australian market is limited,” he said. “The hope is that by developing a retail market, liquidity will be increased. The more liquid the market is the more willing institutional investors will be to come to the market.”

While these amendments will go some way to encouraging retail bond offers, more needs to be done before the market can compete on a world stage according to Baker & McKenzie partner Eric Boone. “The amendments also don’t do anything to close the gap between funding costs in this developing Australian market and those on offer to eligible issuers in mature offshore markets with lower execution concerns,” he said. “Nor do they address the gap in the tax treatment of dividend payments on equity securities and interest payments on debt securities, which has consistently been raised as an impediment to the development of the market.”

However, Lowden does expect more interest, if not action, from Australian corporates if the amendments go through. “I think we will see corporates testing the water… well rated and well named corporates should have retail bond issues on their radar. It would be something that they would start to consider, whereas previously they may have put it in the too-hard basket.”