Welcome to Edition 83 of Boardroom Brief.
This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less.
YOUR KEY BOARDROOM BRIEF
Commissioner Hayne releases Interim Report of the Financial Services Royal Commission. The big news for directors, particularly those of financial services companies, was the release, on 28 September 2018, of the Interim Report of the Financial Services Royal Commission — which covers policy issues arising from the first four rounds of hearings. The Interim Report does not make any firm recommendations. Interestingly, though, it calls into question the value of introducing new laws to address the corporate governance shortcomings revealed by the Royal Commission; suggesting that a better focus might be on improving the enforcement of the complex legal and regulatory regime already in place. Public submissions can be made on the Interim Report until 26 October 2018. The Royal Commission’s final report will be published in February 2019.
Bullseye Mining Limited — Takeovers Panel makes declaration of unacceptable circumstances. Last week, the Takeovers Panel made the declaration against a controversial funding arrangement proposed by public unlisted company Bullseye. Dissident Bullseye shareholders complained to the Panel about two proposed related and inter-conditional transactions which sought to raise nearly £15 million ($26 million) in a convertible note issue as well as $100 million via a so-called gold pre-payment agreement. There was a condition attached that the £15 million could be called upon immediately if certain Board members were removed. The Panel deemed the circumstances of the raising unacceptable, especially as Bullseye is also subject to a hostile $4 million all-scrip takeover offer from listed gold miner Red 5. It considered that: (i) the deal gave Mr Mullan (the father of an executive director of Bullseye), too much power over voting and veto rights; and (ii) the terms of the notes might deter or block a potential control transaction and have a coercive effect on shareholders if shareholder approval is required upon conversion of the notes. The Panel’s decision highlights the importance of Directors and senior management personnel understanding the potential control implications of transactions and the surrounding circumstances that may impact that analysis in order to mitigate risks of Panel intervention.
ASIC creates fintech ties with US and Luxembourg. Last week, ASIC announced that it signed separate cooperation agreements with the US and Luxembourg market regulators to build on each other’s efforts in the fintech and regtech sectors. The US agreement focuses on information-sharing regarding market trends and developments linking the two commissions’ fintech initiatives to help emerging fintech and regtech businesses enter each other’s markets. The Luxembourg agreement follows similar rails. Neither the US or Luxembourg regulator is part of the international coalition of 12 regulators (which includes ASIC) pushing for the creation of the Global Financial Innovation Network (GFIN), which is intended to provide a more efficient way for financial services companies to navigate between countries as they look to scale new ideas.
ASX releases Activity Report for September 2018. On 4 October 2018, ASX released its Group Monthly Activity Report for September 2018 – total capital raised during the month was $8.1 billion, up 1% on the previous corresponding period (pcp). The average number of daily trades was 19% higher than the pcp and the average daily value traded on-market was $4.6 billion, 20% higher than the pcp. Average daily options volume was down 18% on the pcp, while the value of securities held in CHESS was 14% higher.
THE WEEK AHEAD
Government ‘locks-in’ GST reform. Last Monday, the Government issued a media release confirming, further to its announcement in July this year, that it will now “as a priority” introduce legislation to provide certainty for the new GST distribution system. No more specific timing was given and the initiative remains in limbo, with the larger State Governments lobbying hard for a legislative guarantee that none will be worse off under the new regime. Scott Morrison’s political fortunes in Western Australia may well hinge on his ability to finally resolve what has long been a sore point in Federal relations.
Interest rates. Last Tuesday, the Reserve Bank of Australia (RBA) confirmed in its October Statement on Monetary Policy that, as expected, the interest rate would remain, and changes to its views on the Australian and global economy were limited. The RBA emphasised that the low rate is continuing to support the Australian economy, with GDP up this year by 3.4%. Whilst a rate change in either direction is considered unlikely in the near future, the RBA has hinted again it sees the next move being higher. The direction of US trade and monetary policy is creating an uncertainty. US rate rises have tended to surprise on the upside over the last 12 months with a total of seven increases and the likelihood of another in 2018, which (as the chart below from Deutsche Bank indicates) makes the US Fed an outlier in terms of global monetary policy. The impacts on emerging market economies have been predictable. Directors will need to be conscious of the potential impact of rising global yields on the cost of debt finance to their companies.