Disclosure Practice in Infrastructure Fund or Real Estate Investment

Financial Services
Bangkok
Client Alert
Disclosure Practice in Infrastructure Fund or
Real Estate Investment Trust Offerings: 'True
Sale' Issue
Background
June 2014
Following a handful of public offerings of infrastructure funds (IFF) and real
estate investment trusts (REIT), the 'true sale' issue has emerged as arguably
one of the most widely discussed and debated topics. Key questions
surrounding the issue are whether a transfer of assets (whether ownership
over assets, leasehold or revenue streams) from an owner (also know as,
"sponsor") to the IFF or trustee (in the case of REIT) should be regarded and
booked
as a sale of assets or a financing transaction in the financial
+
statements of the sponsor. The issue becomes more complicated if the
6
sponsor or any of its subsidiaries intends to lease back the assets from the
IFF 6or REIT. How the transaction is booked can have a significant impact on
financial figures and the share value of the sponsor; and thus, the interest of
the shareholders
of the sponsor.
2
6
Given
3 that investors will likely consider any regulatory resolution to this
dilemma in making future investment decisions, the Office of the Securities
and Exchange Commission (SEC) has issued two circulars which provide
6
guidelines
as to how relevant parties in the transactions should handle the
1
2
issue.
0
0
Action
Required
0
In order to satisfy the guidelines, listed companies (i.e. sponsors or owners),
asset
e management companies (acting as fund managers in cases of IFFs or
trustees
in cases of REITs) and financial advisors should liaise with each
x
other as summarized in the following table.
t
.
4
9
5
0
___________________
1
d SEC Circular No. KorLorTor.ChorKor.(Wor) 14/2557 re: Guidelines on the Submission of
The
theh Application for Establishment of Infrastructure Fund and Application for the Offering of Trust
Units in Real Estate Investment Trust was issued on 20 May 2014 to asset management
i
companies
and financial advisors, and the SEC Circular No. KorLorTor.PorSor.(Wor) 6/2557
re:r Guidelines on Information Disclosure of Listed Companies' Disposition of Assets to Funds
and Real Estate Investment Trust was issued on 26 February 2014 to listed companies (i.e.
a
companies,
the shares in which are listed on the Stock Exchange of Thailand).
p
h
o
l
Sponsor
Corporate approval
Present the board of directors and/or shareholders
(if required) with adequate information. In addition
2
to information regarding the impact on several aspects
of the sponsor, the guidelines emphasize that the
sponsor's accounting record of the transaction (as true
sale or financing transaction) should be provided to the
interested parties.
The guidelines also add that prior to providing
information regarding the accounting record, the
sponsor should confirm that the transaction will be
recorded as such. In particular, the guidelines
encourage the sponsor to seek prior consultations with
its auditor and the SEC.
Publicity
Refrain from releasing information related to
profits from the sale of assets, unless (1) the IFF or
the REIT is approved by the SEC and (2) the
accounting record is final. The SEC adds that when
the sponsor is permitted to release the information, its
disclosure should be accompanied by appropriate
explanations and supporting evidence.
Asset management
companies and
financial advisers
Recommend that the
sponsor follow the
guidelines on the
corresponding matter.
The language in the
guidelines sent to the
asset management
companies and financial
advisers nearly mirrors
that of the guidelines
sent to the sponsor.
Same as the
guidelines for the
sponsor. They must
also monitor the
sponsor to ensure the
guidelines are closely
adhered to.
Although the guidelines use the term "profit," it is
recommended that the sponsor take a conservative
approach, with proper care taken to avoid providing
any other information from which the profit can be
derived, including gross or net proceeds from the sale
of assets.
Post-transaction
disclosure
Disclose analysis and impacts on the sponsor's
business in the sponsor's annual registration statement
(Form 56-1) and annual report. The guidelines suggest
disclosure in the "Management's Discussion and
Analysis" section (MD&A). Information in the MD&A
section should include the accounting record,
supporting reasons for selecting the accounting record
and impacts on the sponsor (see Footnote 2). The
SEC also recommends that the analysis be both
retrospective and forward-looking statements.
Not applicable.
Additionally, if the sale of assets results in changes in
the risk characteristics of the sponsor, appropriate
disclosure in the "Risk Factors" section should also be
included.
___________________
2
In the guidelines, the information that should be provided includes the impact of the disposition
of assets on the sponsor's business, financial position, results of operations, revenue structure
and encumbrances. In the guidelines, the information that should be provided includes the
impact of the disposition of assets on the sponsor's business, financial position, results of
operations, revenue structure, obligations and contingent liabilities.
Financial Services
www.bakermckenzie.com
For further information please contact
Kitipong Urapeepatanapong
Tel No.: +66 2636-2000 Ext. 3776
[email protected]
Sawanee Sethsathira
Tel No.: +66 2636-2000 Ext. 3445
[email protected]
The relevant parties should note that the guidelines do not result in an outright
prohibition of the transaction in the event that the relevant parties are unable
to reach a clear conclusion as to whether the transaction will be recorded as
true sale or financing. Rather, the guidelines invite the parties to work closely
with the SEC on the issue in order to ensure that they take appropriate action
at various stages of the transaction. In light of these guidelines, parties
engaging in these transactions are encouraged to utilize auditors, advisers,
and legal counsel to ensure that they fulfill their responsibility to provide the
SEC with accurate and precise information on a timely basis.
Thinawat Bukhamana
Tel No.: +66 2636-2000 Ext. 3887
[email protected]
Komkrit Kietduriyakul
Tel No.: +66 2636-2000 Ext. 3024
[email protected]
Viroj Piyawattanametha
Tel No.: +66 2636-2000 Ext. 3061
[email protected]
Chaveewan Likhitwattanachai
Tel No.: 0 2636-2000 ext. 3013
[email protected]
Vit Vatanayothin
Tel No.: +66 2636-2000 Ext. 3127
[email protected]
Wittaya Luengsukcharoen
Tel No.: +66 2636-2000 Ext. 3062
[email protected]
Kowit Adireksombat
Tel No.: 0 2636-2000 ext. 3061
[email protected]
Theppachol Kosol
Tel No.: +66 2636-2000 Ext. 3094
[email protected]
Chaveewan Likhitwattanachai
Tel No.: +66 2636-2000 Ext. 3013
[email protected]
Thananan Sangnuan
Tel No.: +66 2636-2000 Ext. 3126
[email protected]
Theerapab Punyasakhon
Tel No.: +66 2636-2000 Ext. 3122
[email protected]
Benja Supannakul
Tel No.: +66 2636-2000 Ext. 3013
[email protected]
Permsak Krairiksh
Tel No.: +66 2636-2000 Ext. 3127
[email protected]
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