In February 2000, Vodafone's takeover of Mannesmann left convertible holders at the mercy of the issuer, as no change of control language existed. These type of events has prompted the ACBM to draw up the current recommendations.
The ACBM claimed it has tried to achieve a fair balance between protecting the interests of the investors and the issuers. The terms are guided by the principle of ‘fair treatment’ for the investor but without hampering the innovation and creativity of the deal structure.
The terms have been generally worded to allow issuers and their lawyers flexibility in drafting convertible prospectuses. But the ACBM will ensure that best practice, material terms and prospectus standards are met by issuers.
Effectively, all material terms in a convertible issue should be contained in the prospectus and investors should not have to look at other documents like deeds of trust. These material terms should include details on conversion periods, redemptions and change of control at the time of launch. They should also be made on a standardised basis.
The standards will not be mandatory, but it is hoped that issuers will adopt them in their own self interest to appear concerned about investor protection. ACBM believes the adoption of such standards would boost overall interest in convertible products.