Headline: New JSE rules on hybrid financial instruments
First two paragraphs:
31 January 2014Yaniv Kleitman, Cliffe Dekker Hofmeyr
With effect from 2 January 2014, a new s20 has been inserted in the Johannesburg Stock Exchange (JSE) Listings Requirements which governs so-called "hybrid financial instruments" (HFIs) that are listed on the securities exchange operated by the JSE.
HFIs are instruments which have characteristics of both debt and equity. Typical examples of debt instruments would be debentures, bonds and notes, and typical equity instruments would be ordinary shares. Various factors and tests have been adopted to distinguish debt and equity, often in the context of tax law as the classification of an instrument as one or the other often has important fiscal consequences. For instance in the 2012 US case of Hewlett-Packard Co v Commissioner (139 T.C. 8 (2012)), the court outlined the following key factors, amongst others:
? The presence or absence of a maturity date on an instrument;
? The source of the payments;
? The right of the holder of the instrument to enforce payment;
? The right to participate in management;?
? The status / ranking of the instrument as compared to regular corporate creditors of the company; and
? The intent of the parties to the instrument (ie issuer and holder).