Document ID: chunk:federal_register_of_legislation:F2022L01562:body:0:p61
Version: federal_register_of_legislation:F2022L01562
Segment Type: other
Provision Reference: 
Character Range: 158604–161352

includes situations where a future holding company may be substituted as the issuer of ordinary shares on conversion, but not substituted as the issuer of the instrument.

    [36] Any reference to Common Equity Tier 1 Capital instruments in this paragraph includes a reference to mutual equity interests issued in accordance with Attachment I.

    [37] Conversion must be into the ordinary shares of the ADI or its parent entity, which must be listed at the time of issue. For an unlisted ADI with no listed upstream entity at the time the instrument is issued, the instrument is to be converted into the unlisted ordinary shares of the ADI. Where an unlisted ADI issues the instrument to its listed parent entity, conversion may be into the unlisted ordinary shares of the ADI.

    [38] Reference to ADI captures any entity whose ordinary shares are issued as a result of conversion provisions.

    [39] For an unlisted ADI that has no listed parent entity at the time of issue, the ordinary share price is based on the book value per share at the time of issue.

    [40] This may include subsequent ordinary share splits, bonus issues and share consolidations.

    [41] These provisions on cross-default clauses are in addition to the general prohibition on cross-default clauses involving related entities set out in APS 222.

    [42] For example, by way of a scheme of arrangement.

    [43] Where a partial conversion or write-off of an Additional Tier 1 Capital instrument occurs, the amount of the instrument which remains unconverted or not written off may retain its original seniority subject to any future application of the requirements in this Attachment.

    [44]   Where an instrument has a defined maturity and provides for a mandatory roll-over, the maturity of the instrument is deemed to only extend to the date upon which any roll-over may take effect.

    [45]   Conversion from a fixed rate to a floating rate (or vice versa) in combination with a call option without any increase in the credit spread is not considered an incentive to redeem. However, the ADI must not otherwise do anything to create an expectation that the call will be exercised.

    [46]   This does not preclude a parent entity of the ADI from holding the instrument where the instrument is directly issued by the ADI to the parent entity.

    [47] Indirect exposures represent exposures that will result in a loss to the ADI substantially equivalent to any loss in the direct holding. As an example, this would include lending to a borrower on a non-recourse basis secured against any capital instruments of the ADI or members of the group. It would exclude, for example, full recourse lending to a borrower to purchase a well-diversified and