The Australian Securities and Investments Commission (ASIC) has confirmed it has revoked an interim stop order preventing ASX-listed diversified investment company CVC from offering or distributing CVC Notes 2 which had originally been issued, due to deficiencies with the product’s target market determination (TMD).
The interim stop order was made on 30 March and was subsequently revoked on 4 April after CVC significantly narrowed the target market for CVC Notes 2 to address ASIC’s concerns.
ASIC said that it had made the order to protect retail investors from potentially acquiring an investment product that may not be suitable for their financial objectives, situation or needs.
“ASIC was concerned that the target market in the original TMD prepared by CVC was too broad for a higher risk unsecured debt product and defined the target market based on features that CVC Notes 2 does not provide,” it said.
The offer of CVC Notes 2 aims to raise $30,000,000 with the ability to raise more or less and the lead manager and arranger of the offer is E&P Corporate Advisory.
CVC Notes 2 are unsecured notes with a repayment date of 31 March 2026 which rank equally with other unsecured loans of CVC but behind all secured debt.
The regulator stated that CVC had made changes to the original TMD and more appropriately defined the target market of CVC Notes 2 to address its concerns.
“For example, the original TMD indicated that retail investors intending to use CVC Notes 2 as core component (25–75 per cent of investable assets) were potentially in the target market. This has been reduced to 3 per cent in the revised TMD,” ASIC said.
“The original TMD also indicated that retail investors with a ‘medium’ risk profile were potentially in the target market. These investors are now excluded from the target market.”
According to ASIC, the original TMD had defined the target market based on features that CVC Notes 2 does not provide.
“For example, the original TMD indicated that retail investors needing to withdraw money frequently were in the target market despite CVC Notes 2 not providing redemption rights for approximately three years,” the regulator said.
“It also indicated that retail investors seeking a capital preservation product were in the target market. CVC has revised the TMD to exclude these investors from the target market.”
ASIC has told CVC and E&P Corporate Advisory to give retail investors an opportunity to withdraw their application for CVC Notes 2 because the original TMD was deficient.
“ASIC reminds financial product issuers that under the design and distribution obligations (DDO), they must clearly define target markets for their products appropriately, having regard to the risks and features of their products,” it added.
“It is in distributors’ interests to help the issuer ensure the TMD is appropriate so that offer timetables are not disrupted. In this instance, CVC’s offer was delayed due to ASIC’s regulatory action.”
ASIC has made 28 interim stop orders under the DDO due to deficient TMDs to date, of which 23 interim stop orders have been lifted following actions taken by the entities to address ASIC’s concerns or where the products were withdrawn, while five remain in place.