Offshore Distributions: Alberta Proposes to Liberalize Rules Consistent with New Ontario Regime
The Alberta Securities Commission is proposing to liberalize Alberta's regime governing offerings outside Canada. The proposed rules are substantially similar to new rules that came into effect in Ontario on March 31 and will provide much greater certainty while reducing compliance burdens for offering participants in capital raising transactions outside Canada. Most significantly, foreign purchasers would no longer have to provide an acknowledgment of risks and other matters; resale restrictions would be removed for most offshore offerings; and stock exchange listing requirements would be eliminated. Comments on the proposed rules are due by June 18.
Proposed New Prospectus Exemptions
The proposed new prospectus exemptions for offerings outside Canada are summarized below. Corresponding exemptions would be provided from the Canadian dealer and underwriter registration requirements for foreign dealers participating in these offerings. Each exemption would be conditional on the offering participants materially complying with any applicable foreign securities laws. Anti-avoidance provisions would require offering participants to structure their transactions in good faith and not deliberately plan or scheme to evade compliance with securities laws.
1. Foreign Qualified Offering
A prospectus exemption would be available for offshore public offerings that are either
- registered with the SEC, or
- qualified by a prospectus or the equivalent in a specified foreign jurisdiction.1
Correspondingly, the issuer would be permitted to solicit foreign investors and engage in marketing activities outside Canada in advance of the offering. The securities would be freely tradable without resale restrictions on sales back into Canada.
2. Concurrent Alberta Prospectus Offering
This prospectus exemption would be available for the foreign tranche of a cross-border offering, where the concurrent domestic tranche is qualified by a prospectus in Alberta. An example is a Canadian prospectus offering combined with a U.S. private placement under Rule 144A. The prospectus would have to clearly state whether or not it qualifies sales to investors outside Canada. The securities issued in the foreign tranche would be freely tradable back into Canada.
3. Reporting Issuer Conducting a Foreign Offering
Reporting issuers would be permitted to sell securities anywhere outside Canada without a prospectus, and the securities would be freely tradable back into Canada. This exemption would not be conditional on filing an SEC registration statement or other foreign prospectus-equivalent.
4. Foreign Offering by Non-Reporting Issuer
This exemption would permit private (non-reporting) companies to sell securities anywhere outside Canada. The exemption would not be conditional on filing an SEC registration statement or other foreign prospectus-equivalent. Securities sold under this exemption would not be freely tradable back into Canada. A legend would be required on the securities unless and until the issuer became a reporting issuer in Canada and four months had elapsed thereafter.
Reporting Requirements
A Report of Exempt Distribution would be required for transactions done in reliance on the third or fourth prospectus exemption described above. The report would have to be filed within 10 days of a distribution (for non-investment funds) or within 30 days of calendar year end (for investment funds). The report would require basic information about the type and terms of the securities distributed and the offering participants. No information would be required about the purchasers or about the issuer's directors, officers, promoters or control persons.
Offering Memorandum for Sales to Canadian Investors
Along with liberalizing its offshore offering rules, the ASC is proposing to facilitate capital raising by Alberta issuers across Canada under the offering memorandum (OM) exemption. Alberta's OM rules are somewhat different from those of other Canadian jurisdictions. Under the proposed new rule, issuers would be able to rely on another jurisdiction's OM rules when selling securities to non-Alberta investors. This change would reduce compliance burdens and better harmonize OM offerings across Canada. There would be no change to the current requirement to file a Report of Exempt Distribution.
Offshore Resales
In addition to Alberta and Ontario liberalizing their offshore distribution regimes, the rules governing offshore resales are being liberalized across Canada. This will enhance Canadian investors' ability to participate in foreign issuers' securities offerings. The new resale rules are expected to become effective on June 18, 2018. For details, see Torys' client bulletin Streamlined Canadian Rules for Reselling Foreign Securities Will Benefit Investors with Global Portfolios.2
Status of Current Alberta Policy on Offshore Offerings
The prospectus exemptions described above are safe harbors meant to provide certainty for offering participants when distributing securities outside Canada. The ASC's existing guidance—to be moved to the Companion Policy of the new rule—sets forth qualitative factors for determining whether an Alberta prospectus is required, such as the issuer's connection to Alberta and the likelihood of the securities coming to rest outside Canada. These qualitative factors will still be relevant for offshore transactions that fail to qualify under one of the enumerated exemptions. In those cases, the issuer and underwriters may use the qualitative factors to assess whether an offshore offering is subject to Alberta's securities laws.
Cross-Canada Disharmony
The Alberta and Ontario regimes governing offerings outside Canada will be harmonized if the ASC's proposals are adopted—a welcome development for market participants. However, the rules are not identical across the country, so issuers and underwriters will still have to consider, based on the facts and circumstances, whether an offshore offering is subject to, or exempt from, the prospectus requirements of other Canadian jurisdictions.
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1 The specified foreign jurisdictions are Australia, France, Germany, Hong Kong, Italy, Japan, Mexico, the Netherlands, New Zealand, Singapore, South Africa, Spain, Sweden, Switzerland, the U.K. and any other member state of the E.U. The ASC would also be open to applications for exemptive relief for offerings into other jurisdictions.