Raising capital from existing investors and the public can be challenging, particularly when you are facing the numerous requirements of the Financial Markets Authority (FMA) and related financial markets legislation. However, when done properly, the result can be massively successful for all involved. Cavell Leitch recently advised Shopping Centre Investments Limited (SCIL) with their public capital raise. SCIL owns 'The Hub' shopping mall in Hornby. The result was phenomenal with SCIL raising their target of nearly $14 million in less than 3 weeks on the market. This was achieved through great insight, planning and performance from the directors and their advisors.
SCIL engaged us early on in the project and this ensured that we could properly advise and guide their decisions from the outset. Early advisor involvement is necessary for a well-organized and successful capital raise. This means engaging legal and financial professionals to advise on the regulatory requirements, market factors and the different financial products you might offer. Our legal work for SCIL involved:
- Providing this initial planning advice;
- Investigating and completing due diligence on the company and its property;
- Drafting a trust deed for the statutory supervisor;
- Creating a Product Disclosure Statement (PDS); and
- Working with the supervisor, SCIL's bank and the FMA to obtain their approval of the PDS.
The feedback we received on our documents was extremely positive with most commenting that our documents were clear, concise and very easy to read/understand.
Raising capital from the general public means that certain disclosure requirements are compulsory under the Financial Markets Conduct Act 2013 (FMCA). The FMCA requires a product disclosure statement (PDS) to be made available to investors for every public offering. The PDS replaces the old prospectus disclosure format and requirements. The Financial Markets Conduct Regulations 2014 (Regulations) strictly dictate the content and layout requirements of a PDS and are focused on providing the potential investor with the critical information of the investment and excluding any less relevant information. The FMA will reject a PDS if it does not contain the all of the required information, or if the PDS contains unessential information. The FMCA also places restrictions on marketing offers to public both before and after the PDS is made available.
The requirements of the Regulations and the PDS differ depending on whether you are offering an equity based financial product, a debt based financial product, or a mix of both which is known as a convertible financial product. SCIL's capital raise involved a convertible financial product known as a 'note'. The convertible note is a debt security which earns interest for a set period of time and is then converted into shares in the company. While lesser known than standard debt or equity products, the note format proved hugely popular with investors. It also required a specialist legal understanding of the FMCA and the Regulations.
Any debt security requires a statutory supervisor to be appointed to oversee the raise and the investment. This meant that SCIL had to appoint a supervisor and then work with the supervisor to create a trust deed and get their approval for the PDS. It also meant working with SCIL's bank and the FMA to obtain their approval to the trust deed and PDS. Managing the interests of all these parties was not simple, it required a committed and skilful legal approach.
The difficult requirements and significant penalties under the FMCA discourage many organisations from completing a public capital raise. However, the success of SCIL's raise shows that it can be great way to raise capital. Expert legal advice in this area is essential due to the complex process and requirements involved with a public capital raise. If you are interested in completing a capital raise for any public or private investment then contact the experienced and knowledgeable team at Cavell Leitch for more information on how they can help you achieve a brilliant result.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.