ASIC has placed an interim stop order on offers from Finnia Income in response to deficiencies in the issuer’s target market determination (TMD).
The regulator stated in a media release that the order prevents Finnia from issuing interests in, giving a prospectus for or providing financial advice to retail clients under the existing TMDs.
Finnia is an unlisted public company seeking to raise $20 million under a prospectus through the issue of redeemable preference shares in the company for lending to real estate development projects. Potential investors must contribute a minimum of $25,000 for a term of 72 months. The targeted interest rate is 8.15 per cent paid quarterly.
At the time of lodgement of the prospectus, Finnia had not prepared a TMD for the offer. Finnia produced a TMD after ASIC communicated with the company.
In summary, the target market defined by Finnia in its TMD included investors:
- Wanting to invest a minimum of $25,000 in redeemable preference shares exposed to the property sector;
- Seeking an investment earning a higher return on investments than that offered by banks;
- With a balanced to aggressive risk profile;
- With the ability to read and comprehend the prospectus.
Among other things, ASIC was concerned that Finnia’s TMD did not adequately describe the objectives, financial situation, and needs of consumers likely to be in the target market in an objective manner. Instead, it primarily focussed on the features of the offer and consumers’ understanding of the offer.
ASIC also found that the TMD for the prospectus did not meet appropriateness requirements under the Design And Distribution Obligations (DDO) because the distribution conditions were unlikely to result in the product being distributed to consumers in a suitable target market. Finnia’s distribution conditions were limited to identifying investors who had already registered with the issuer and were willing to meet the minimum investment of $25,000. There were no additional processes to identify investors as being within the target market.
Finnia has the opportunity to consider the concerns raised about the TMD. ASIC will consider making a final order if its concerns are not fully addressed in a “timely manner”. Finnia will have an opportunity to make submissions before a decision is made about any final stop orders.
ASIC previously placed a separate interim stop order on the same prospectus due to disclosure concerns.
ASIC placed the interim stop order to protect retail investors from potentially investing in offers that may not be suitable for their financial objectives, situation or needs. To date, 13 interim stop orders have been issued regarding non-compliant TMDs. Seven remain in place, and six have been lifted following actions taken by the entities to address ASIC’s concerns.
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