By Bruce MacNeil, Partner, Ogier
2017 was in many ways a landmark year for The International Stock Exchange (“TISE”), representing a year of 40% growth in the volume of new listings and increasing use by issuers of TISE for high yield listings.
It will soon be the second anniversary of EU Market Abuse Regulation No 596/2014 (“MAR”) which came into force on 3 July 2016. This article, ahead of the second anniversary of MAR having come into force, considers why this growth in TISE listings of high yield bonds is occurring and what TISE is doing to support this growth.
Traditionally, high yield bonds have needed to be listed (on an EU exchange or a non-EU exchange) for two reasons – firstly, for the withholding tax exemption as explained below, and secondly, to make them an option for EU and US investors which are subject to investment restrictions requiring listed investments.
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For some issuers, listing high yield bonds is also seen as a precursor to an IPO, providing an opportunity for profile raising and engaging with investors, as well as understanding what it means to have a listing.
Issuers have traditionally listed debt on TISE (formerly known as the Channel Islands Securities Exchange) to take advantage of the Quoted Eurobond Exemption, thereby, for example, enabling an issuer subject to UK tax to make interest payments on listed securities gross without withholding for tax.
TISE is recognised by HMRC as a recognised stock exchange under Section 841 of the UK Income and Corporation Taxes Act 1988, meaning that qualifying debt securities listed on TISE are eligible for the Quoted Eurobond Exemption.
EU Market Abuse Regulation (MAR)
MAR came into force on 3 July 2016, extending the scope of existing EU market abuse regulation to issuers of debt securities which are traded on a multilateral trading facility (MTF) or an organised trading facility (OTF). MTFs encompass many trading and listing venues that are not regulated markets, such as the Irish Global Exchange Market (GEM) and the Luxembourg EuroMTF.
MAR requires that policies and procedures are put in place to ensure compliance with its rules, for example relating to additional disclosure requirements, the preparation of insider lists and reporting of transactions involving persons discharging managerial responsibilities within the issuer (“PDMRs”) and the maintenance of lists of such PDMRs and any associated persons. EU exchanges have amended their respective listing rules to reflect the requirements of MAR, as it is directly applicable in all EU Member States and affects all issuers with securities listed on affected EU exchanges.
TISE listings of debt securities are not subject to MAR, but instead are subject to the requirements of Chapter 8 of TISE’s Listing Rules (the “Listing Rules”). TISE’s position, as explained below, is more flexible and involves recognition that specialist debt securities issued by SPVs/holding companies tend to be purchased and traded by a limited number of sophisticated, intra-group and/or institutional investors.
The main advantages of TISE as compared to other exchanges is that it offers recognised stock exchange status for Quoted Eurobond purposes, competitive pricing, a responsive approach and a pragmatic approach to disclosure and regulatory requirements.
TISE is internationally recognised by various bodies, as underlined by its status as an Affiliate Member of the International Organisation of Securities Commissions (IOSCO) and an Affiliate Member of the World Federation of Exchanges (WFE) as well as its more recent recognition from the German financial services regulator (BaFin). TISE is licensed to operate as an investment exchange under the Protection of Investors (Bailiwick of Guernsey) Law 1987 and is regulated by the Guernsey Financial Services Commission.
Since July 2016 when MAR came into force, more than 100 issuers have chosen to list high yield bonds on TISE. This has included a mix of European and US issuers (including high profile issuers such as Netflix). Recently, there have also been a number of migrations of listings of high yield bonds from the Irish and Luxembourg exchanges to TISE.
There were 705 new listings on TISE in 2017, which was an increase of 203 (40%) on the previous years, with much of the growth (approximately 10%) driven by high yield bonds. In 2017, there were 71 new listings of high yield bonds by 56 issuers on TISE. This has been significant growth and feedback from our clients/intermediaries has been that TISE has adopted a helpful and pragmatic approach in supporting this growth.
TISE’s Approach toHigh Yield Listings
Any issuer wishing to have its securities listed on TISE is required to engage a listing sponsor, which will act as an intermediary between the issuer and TISE, including seeking TISE’s approval for the form and content of listing particulars, applying for any derogations from the Listing Rules and preparing and filing listing applications.
Ogier Corporate Finance Limited is one of the leading sponsors of listings on TISE and has been a member of TISE since its launch in 1998. We have worked on a large number of high yield listings, particularly over the last 18 months, and our experience of TISE’s approach in this area is as follows:
High yield bonds are treated as specialist securities under Chapter 8 (Specialist securities) of TISE’s Listing Rules, which requires that investors are sophisticated and/or institutional. Specialist securities must not be held by retail investors, although high yield bonds usually have a high denomination, in which case this should not be an issue.
A number of high yield issuers use password-protected websites to distribute quarterly results and other announcements to bond market participants and TISE, without publicly publishing this information (as would be required under MAR). TISE permits the use of password-protected websites, subject to all information being made readily available to any qualified persons likely to deal in the listed securities, i.e. potential investors.
The offering memorandum (“OM”) prepared by the issuer’s onshore counsel will form the listing document for the purposes of the listing application, together with the indenture and any other material documents in connection with the issue of the securities (or alternatively, subject to TISE’s approval, the indenture and/or such material documents maybe summarised in detail in the OM rather than forming part of the listing document).
Under the Listing Rules, disclosure requirements in the listing particulars have been set at a level to provide investors with sufficient information to make an informed investment decision regarding the listed securities, but without imposing unnecessarily onerous demands on the issuer.
The listing sponsor will provide comments on the OM to ensure compliance with the disclosure requirements of the Listing Rules, subject to any derogations agreed with TISE (to the extent that such disclosure requirements are not already satisfied in the draft OM). In the case of migrations from other exchanges and/or where the OM has already been finalised, TISE will accept a wrapper document which will wrap around the original OM and include the necessary disclosure.
Issuers are required to provide 3 years of audited accounts under the Listing Rules, but the listing sponsor may request derogations from this requirement where appropriate, for example in the case of newly incorporated issuers.
The Listing Rules require that, where the securities of an issuer are guaranteed, the guarantor must also provide copies of its latest independent audited accounts to TISE. However, TISE will generally not require standalone guarantor accounts for each guarantor in the same group if the net assets and revenue of the guarantors is not less than 75% of the group (in which case, the issuer can instead provide group consolidated accounts).
We have seen significant growth in the number of high yield listings we have sponsored, particularly over the last 18 months, as there has been increasing acceptance by issuers and investors that high yield listings on TISE follow a well-trodden path.
Based on comments from our clients and intermediaries, we expect that high yield listings on TISE will continue to be a popular route for the foreseeable future, particularly as issuers and investors continue to require the advantages of listings, but without wishing to subject themselves to an unnecessary compliance burden.