1. Approach 10 financiers
Under the first public offer test, the debentures must be offered for issue to at least 10 persons who were each carrying on the business of providing finance, or investing or dealing in securities, as participants in financial markets. For example, if the Australian company offers its debentures to 10 banks or pensions funds operating in a financial market, the public offer test will be satisfied. It is a requirement of this test that the persons approached must not be known or suspected by the issuing company to be associates of each other. The company offering the debentures for sale does not need to undertake a detailed examination of the parties to whom the debentures are offered. It cannot, however, ignore companies that are generally known to be associates.
2. Offering debentures for issue to 100 potential investors
The second public offer test will be satisfied if at least 100 investors receive an offer of debentures for issue. This test is to accommodate financing operations undertaken in retail capital markets that are directed at individual investors and businesses. For example, this test may be satisfied by an issuer of debentures sending letters to persons who it may reasonably regard as having acquired debentures from time to time. Similarly, if offers are made to 100 customers of a stock broker who have previously purchased debentures this test will clearly be satisfied. Offers made to persons who have not previously purchased debentures from a stock broker but whom the broker has reason to believe may be interested in acquiring debentures or other securities will be counted for the purposes of the second public offer test. It will also be satisfied where an agent acting on behalf of the company approaches customers with an offer of the debentures for issue. The second test will not be satisfied where 100 persons receive an offer of debentures for issue who have not previously acquired debentures and in respect of whom the issuer has no reasonable basis for believing that they may be interested in acquiring debentures.
3. Listed on a stock exchange
The third public offer test will be satisfied if the company offers debentures for issue where the debentures have been accepted for listing by a stock exchange and the company has agreed with its dealers, managers or underwriters to have the debentures listed on the stock exchange following issue.
4. Quoted in a published source
The fourth public offer test will be satisfied if the debentures are offered for issue as a result of negotiations beginning with the company announcing in an electronic source or other sources, information monitored by capital markets, its intention to raise funds by issuing debentures. For example, the public offer test will be met if negotiations between an investor and the issuing company began because the investor became aware of the company's intention to raise funds after seeing an electronic information source or offering circular.
In relation to electronic quotation, the public offer test will be satisfied if the Australian company's offer of debentures for issue is quoted on an electronic financial information source such as Reuter financial services or Bloomberg. The details required to be in the electronic quotation are the name of the company issuing the debentures and the name of the programme. The quotation may include the names of the dealers or managers.
In relation to hardcopy publications, the debenture offer must be published in a publication monitored by financial markets as a source of information. For example, publication of an offer of debentures for issue in a leading financial newspaper in London or New York will satisfy this test. The test, however, will not be satisfied if the debenture offer is published in a source not used by financial markets for dealing in debentures. A prospectus or offering circular that is publicly available in capital markets will also meet this test.
Issues of debentures to associated persons always fail the public offer test
A company will fail the public offer test if it was aware (or had reasonable grounds to suspect), at the time of issue, that the debentures would be acquired by an associate of the company issuing the debentures.