Experts: Development of bond markets would support growth and employment
A working group proposes the development of bond markets in order to ensure opportunities for companies to grow, employ and continue to operate. According to the working group, the proposals would, for example, enhance bond markets and reduce creditors’ desire to institute bankruptcy proceedings against companies.
Updated on 1 February with a link to Questions and answers on the bond market and on bondholder representatives
The working group’s task was to make a proposal for legislation on bondholder representatives and to assess other measures to improve bond markets and their functionality. The broad-based working group comprised representatives from the key authorities and interest groups.
Working group opens discussion on reform of corporate restructuring
The working group proposes that in corporate restructurings it should be possible to convert bonds into shares without the consent of shareholders. At present, a company’s shareholders must give their consent to this so-called debt-to-equity swap. The working group considers this to be the main obstacle to the development of bond markets, particularly from the perspective of institutional investors.
If the consent of shareholders were not needed, corporate restructuring would become a more attractive option for creditors. In the working group’s view, this would reduce creditors’ desire to institute bankruptcy proceedings against companies.
In debt-to-equity swaps, creditors would receive a separately determined holding in the company and the holdings of the existing shareholders would be correspondingly reduced. The proposal is based on, among other things, experiences gained from the Talvivaara corporate restructuring.
Attractiveness of domestic bonds would improve
The working group seeks through its proposal to support growth, employment, entrepreneurship and business continuity as well as to diversify financing channels for companies. The reform will also improve the attractiveness of domestic bonds in relation to foreign bonds, which is important for Finnish companies’ growth opportunities.
Bonds have become more popular as a form of corporate financing in recent years. At the beginning of 2015, the total nominal value of bonds issued by domestic operators was approximately half of the value of the stock market.
The working group made two alternative proposals on debt-to-equity swaps in corporate restructuring. One is restricted to listed companies and listed bond issuers, while the other applies to all companies.
Three dissenting opinions on the proposal on debt-to-equity swaps were given in the working group. The Ministry of Justice considers in its dissenting opinion, for example, that the possible amendments to be made to corporate restructuring legislation will be so wide-ranging and fundamentally significant that they should be prepared separately.
Proposals on bondholders’ rights revised
The working group had early prepared a unanimous proposal that would clarify the operating rights of bondholder representatives. The working group has now revised and supplemented its proposal on the basis of consultation feedback published on 24 October. The working group was unanimous on this proposal.
A bondholder representative is a company that represents investors in their relationship with issuers, i.e. companies seeking financing. The objective of new legislation would be, among other things, to increase legal certainty and enhance bond markets.
In addition, the working group proposes a number of other minor legislative amendments that would develop bond markets.
Solutions to be based on consultation feedback
The Ministry of Finance circulated the working group’s proposals for consultation on Friday, 27 January. The consultation period will end on 10 March.
The organisation and scheduling of further preparation of the development proposals will be assessed on the basis of consultation feedback in March-April. The working group proposes that the Government would submit its supplemented proposal on the rights of bondholder representatives to Parliament in May and that the Act would enter into force next autumn.
Working group’s proposal (in Finnish with English abstract)
Working group wishes to clarify bondholder representatives' operating rights (Press release 1 July 2016)
Jarno Tepora, Professor Emeritus of Civil Law, Chair of the Working Group, tel. +358 40 554 2807, jarno.tepora(at)helsinki.fi
Ilkka Harju, Legislative Counsellor, tel. +358 2955 30215, ilkka.harju(at)vm.fi
Urpo Hautala, Financial Counsellor, tel. +358 2955 30276, urpo.hautala(at)vm.fi