[Updated as at April 2022]
In the 2020/2021 budget, the Minister of Finance, Economic Planning and Development announced that the Bank of Mauritius (“BOM”) would come up with a framework for blue and green bonds. A technical committee was set up, comprising of representatives of the BOM, Ministry of Financial Services and Good Governance, the Financial Services Commission (“FSC”), the Stock Exchange of Mauritius and Standard Chartered, to work on the development of the domestic sustainable bonds market in Mauritius.
Consequently in June 2021, the BOM issued a guide for the the “Issue of Sustainable Bonds in Mauritius”. As a supplement to the BOM’s guide, FSC issued the guidelines for the “Issue of Corporate and Green Bonds in Mauritius” (“FSC Guidelines”), effective from 23 December 2021. This article provides an overview of the FSC Guidelines, as revised in April 2022.
The regulatory landscape
The aim of the FSC Guidelines and the BOM guide is to assist potential issuers in better understanding the legal and regulatory requirements for the issue of corporate and sustainable bonds and the listing of these bonds on exchanges licensed in Mauritius.
In addition to these two sets of guidelines, issuers must also adhere to the requirements of the Companies Act 2001 (to the extent applicable) and the Securities Act 2005 (“SA 2005”). Depending on whether the bonds are made by way of a public offer or a private placement, issuers must also comply with the Securities (Public Offers) Rules 2007 or the Securities (Preferential Offer) Rules 2017. If the bonds are listed on a securities exchange, the issuer must also ensure that the offer document or prospectus satisfies the rules of the relevant securities exchange and the Securities (Disclosure Obligations of Reporting Issuers) Rules 2007.
Failure to comply with the FSC’s Guidelines leads to regulatory actions which may include a direction issued under sections 7 and 46 of the Financial Services Act 2007 (“FSA 2007”) and sanctions under section 7 (1) (c) of the FSA 2007, such as private warnings or public censures, disqualification from holding a licence or in the case of officers, from holding office in a licensee, administrative penalties, and revocation of licences amongst others.
Eligible issuers
An “eligible issuer” of corporate bonds or green bonds must comply with the FSC Guidelines. An eligible issuer can be either:
- a “reporting issuer” as defined in section 86(1) of the SA 2005, i.e. (i) an issuer who, by way of a prospectus, has made an offer of securities, or (ii) an issuer who has made a takeover offer by way of an exchange of securities;
- an “issuer” as defined by section 2 of the SA 2005[1] who satisfies the requirements of part 4.1 of the Guidelines, namely:
- having, at any point in time, not earlier than 18 months prior to the proposed issue of corporate bonds, net assets of a total value exceeding MUR 100 million (or its equivalent), as certified by its external auditors and reflected in the issuer’s audited financial statements;
- being in existence for at least three years and either having positive net profits after tax over the last 12 months’ preceding the application for the issue, or having a Debt/EBITDA for the last two financial periods preceding the issue of a weighted average between zero and six (6) times (inclusive); and
- with no history of recurrent default/late payments based on the report at the Mauritius Credit Information Bureau (or any relevant report) at the time of issuance;
- an issuer who issues fully secured or guaranteed corporate or green bonds; or
- an issuer issuing corporate or green bonds having a minimum credit rating of BBB, issued by a domestic credit rating agency licensed or recognised by the FSC. The credit rating must be reviewed annually until the maturity of the bond, and the issuer must inform the investors and the corporate finance advisor of any change in rating.
In the event that an issuer (the ‘Non-Eligible Issuer’) does not fall within one of the four categories of ‘eligible issuer’ specified above, the Non-Eligible Issuer may still issuer corporate or green bonds, subject to certain conditions:
- Any bonds must be issued to sophisticated investors only, until the Non-Eligible Issuer meets the requirements in one of the four categories and such information is appropriately disclosed; and
- The corporate finance adviser of the Non-Eligible Issuer must ensure that the offer document comprises (a) an undertaking from the directors of the Non-Eligible Issuer that the bonds will not be subscribed at the issue date by any vehicle which will the bonds as underlying for an offer or issue to retail investors, (b) a disclosure statement specifying which eligibility criteria which are not being met by the Non-Eligible Issuer, and (c) a disclosure statement on certain financial information such as key debt, credit and cash flow metrics, forecast income statements and so on.
Eligible issuers issuing a corporate bond of at least MUR 100 million (or its equivalent in any other currency acceptable by the FSC), or a green bond (irrespective of the issued amount) will fall under the purview of the FSC Guidelines. In either case, the bond must have a maturity date of more than 365 days.
The minimum issue lot is of MUR 1 million for corporate or green bonds issued by a preferential offer, or of MUR 10,000 for corporate or green bonds issued through a public offer.
Key requirements of the FSC Guidelines
The FSC Guidelines set out a number of important requirements in respect of corporate and green bonds such as (i) who may hold the bonds as eligible investors, (ii) the form of the bonds, (iii) the market conventions applicable in respect of the coupon rate, (iv) underwriting, (v) the manner in which bonds should be traded, bought back, transferred or redeemed, (vi) restrictions on securitisation, (vii) the appointment and duties of functionaries, (viii) disclosures to be made in the offer document, and so on, as summarised in the table below:
| Who can hold the bonds? | Companies or any other persons. |
| Form of bonds | It is apposite to note that the FSC Guidelines expressly provide that bonds must be issued in the form of debentures under the Companies Act 2001. |
| Denomination | The corporate and green bonds must be denominated in MUR, USD, Euros or in any other currency acceptable by the FSC. |
| Market conventions in respect of coupon rate | The coupon is determined by the issuer taking into consideration the prevailing Government bond yield curve and any other relevant market rates and risk premium. Yields on the corporate and green bonds shall be rounded to 2 decimal points and prices shall be rounded to 3 decimal points. The day count convention shall be Actual/Actual, , Actual/365, Actual/364, Actual/360 or 30/360 or such other convention as may be advised by the corporate finance adviser in respect of the offer. |
| Underwriting | A public issue of corporate or green bonds may be underwritten by a licensed person holding an investment dealer (full service dealer including underwriting) licence. The issuer must ensure that adequate disclosures regarding underwriting arrangements are disclosed in the offer document. |
| Trading of bonds | Unlisted corporate and green bonds may be traded over the counter (“OTC”) on the secondary markets. In addition, settlement for OTC trades of corporate and green bonds shall be carried out within three (3) business days of the date of approval by the Registrar General. Listed bonds are traded in accordance with the relevant rules of the securities exchange. |
| Buyback of bonds | An issuer may also buy back corporate or green bonds from the bondholders before maturity through the issuing and paying agent (the “IPA”) appointed by the issuer and subject to the approval of the issuer’s directors. The buyback offer can be extended to all investors in the corporate or green bond issue or to investors in a particular tranche. |
| Transfer of bonds | Corporate bonds and green bonds are transferable. |
| Redemption of bonds | On the maturity date of the bonds the IPA will effect payment to the bondholder after receiving payment from the issuer, through direct transfer into a bank account or as agreed with the bondholder. |
| Restriction on securitisation | FSC approval is required where a derivative instrument has as underlying asset a green bond issued by a Non-Eligible Issuer. Approval of the FSC is not required where the derivative instrument is issued to sophisticated investors. |
| Appointment and duties of functionaries | An issuer must appoint an IPA and a corporate finance adviser and ensure that its relationship with such functionaries are set out in a written agreement. The duties of the IPA are to (i)keep the monies of each issuer segregated from one other, and segregated from the IPA’s own funds; (ii) maintain adequate insurance over against frauds and electronic and computer crime, (iii) in case of a default by the issuer, immediately notify the investors, the credit rating agency and the Commission of such default; (iv) on the maturity of the bonds, ensure that funds are received from the issuer and payments are made to the investors; and (v) report to the FSC any details concerning the issue of the bonds within fourteen (14) working days of the issue date. The corporate finance adviser is responsible for (i) acting as the principal point of contact (with the written authorisation of the issuer) between the FSC and the issuer; (ii) verifying all information disclosed in the offer document before the issuance of bonds; (iii) arranging for the allocation of an International Securities Identification Number code to each bond issue, as applicable; (iv) ensuring that the offer document specifically mentions that any investment is subject to credit and other risks and that all payments will be made only if the issuer has made the funds available to the IPA; (v) conducting (or arranging the conduct of) a customer suitability assessment to ensure that individual investors understand the risks linked to investment in the bonds and that such investment matches the customer’s objectives and risk appetite; (vi) conducting due diligence checks on the investors in compliance with prevailing laws and regulations on anti-money laundering and combating the financing of terrorism; (vii) ensure that the pricing of the bond reflects the issuer’s credit rating and is in line with market conditions; and (viii) submit a report to the FSC every six (6) months concerning the outstanding amount of bonds issued and other relevant information. |
| Disclosure in the offer document | The offer document must contain all prescribed disclosures imposed by applicable laws (such as details concerning the issuer’s directors and key management, the issuer’s indebtedness etc), depending on whether the bonds are offered by a private placement or a public offer. |
| Continuing disclosure obligations | Where a corporate bond or a green bond is listed, the issuer must comply with any continuing disclosure obligations prescribed by applicable law and the rules of the securities exchange. Disclosure must be made to the regulators in respect of, inter alia, an issue of a new tranche of bonds (including details concerning the credit rating of the tranche, whether a fixed or floating interest rate is paid, the maturity date of the tranche, the actual rate at issue, the spread over the repo rate for floating rate notes, the spread over a similar maturity government bond for fixed rate and zero coupon notes), changes in the terms and conditions of the bonds, the redemption or cancellation of the bonds, or the occurrence of an event of default amongst others, information which may have a direct and material impact on the pricing of the bonds, and the status of outstanding bonds (where such bonds are outstanding). |
Green bonds
As regards to green bonds specifically, the FSC Guidelines broadly reflect the contents of the BOM’s guidelines on:
- the use of proceeds and the types of projects which can be financed by such green bonds;
- the issuer’s obligation to establish defined internal processes for evaluating and selecting projects which will be funded by the proceeds;
- the issuer’s obligation to establish clearly defined internal mechanisms to manage and track the proceeds of green bonds so as to ensure the traceability of the use of invested proceeds as well as the remaining uninvested balance. This relates to the traceability of the use of invested proceeds as well as the remaining uninvested balance; and
- the appointment of an independent external reviewer, whose mandate is to carry out a pre-issuance review on the credentials of the projects to be funded by such green bonds as well as the issuer’s compliance with the Guidelines.
Whilst the BOM’s guidelines set out an overview of the issuer’s obligations concerning the external review process, the FSC Guidelines expatiate specifically on two points:
- The reviewer must produce a pre-issuance review report, made and the Commission at least 14 business days prior to issuance. The report must be made available to investors in case of a preferential offer, or must be included in the offer document in case of a public offer; and
- The persons who may act as independent external reviewer, i.e. an auditor registered with the Financial Reporting Council, a credit rating agency licensed or recognised by the FSC, or any other service provider recognised by the FSC. Such reviewer must have relevant and sufficient expertise in ESG.
In addition, the FSC Guidelines refers explicitly to a ‘Green Bond Progress Report’ intended for investors and which should be published annually on the issuer’s website until the maturity of the bonds. The report aims to ensure the ongoing transparency and regular disclosure of information about the status of the green bond proceeds and should also include the intended types of temporary placement for the balance of unallocated proceeds. This report should contain at least (i) a list of projects funded by the proceeds of the bonds; (ii) a description of each project and the corresponding amount disbursed; (iii) specifics of the projects financed (and refinanced if relevant); (iv) the environmental impact of the projects; (v) the qualitative and where feasible, the quantitative KPIs used to measure the environmental impact of the projects; (vi) the underlying methodology or assumptions used in preparing the KPIs; (vii) confirmation of the ongoing eligibility of the projects as ‘qualifying green projects’; (viii) the balance and type of temporary placement for any unallocated proceeds; and (ix) the expected remaining timeframe for completion of the projects.
Information can be presented in generic terms or on an aggregated portfolio basis, where confidentiality agreements, competitive considerations or a large number of underlying projects limit the disclosure of details, provided that such information allows investors and the FSC to formulate their opinions on the green credibility of the projects funded.
Footnote
[1] “Issuer” means a person or other entity which issues, has issued or will issue securities.
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