4778

NEW ZEALAND GAZETTE

No. 147

payable by the issuer, the amounts taken into account to calculate income/expenditure consist of:

(i) Coupon Interest Payments;

(ii) amounts attributed to Coupon Interest Payments as set out in subclause 6 (3).

(b) in respect of the acquisition price, the amounts to be included when calculating income/expenditure are those attributed to Coupon Interest Payments as set out in subclause 6 (4).

(2) The income derived or expenditure incurred in respect of a Specified MCCN shall be calculated by daily apportionment of the Coupon Interest Payments to Income Years. For the method, see Determination G1A: Apportionment of Daily Income and Expenditure.

(3) If a Specified MCCN on which interest is payable is sold part way through an interest period, then usually the buyer will receive the entire Coupon Interest Payment for the interest period in which the sale falls. In that case it is necessary to apportion the Coupon Interest Payment between the seller and the purchaser. The seller is allocated interest, on a daily straight line basis, that accrues before the date of sale. (See Example C).

Note: If the Coupon Interest Payment is not known until after the date of sale, it shall be assumed to be equal to the Coupon Interest Payment for the previous period (adjusted for any difference in the length of the period).

(4) The portion of the sale price thus attributed to accrued interest and allocated to the seller is, in turn, treated as the purchaser’s acquisition price of the financial arrangement. If the purchaser later receives the Coupon Interest Payment for the sale period, then this portion attributed to accrued interest may be immediately offset against the amount received when calculating the amount of income derived from the financial arrangement in that year. (See Example C).

(5) Where a new issuer succeeds to the obligations of the issuer under a specified MCCN, on an amalgamation or otherwise, part way through an interest period, then usually the new issuer will be responsible for paying the entire Coupon Interest Payment for the interest period in which the succession occurs. In that case, the issuer is deemed to have paid an amount to the new issuer in consideration for the portion of the Coupon Interest Payment accruing in the period of the succession. This is treated as the new issuer’s acquisition price of the specified MCCN for the purposes of the accrual rules. When the new issuer later makes the Coupon Interest Payment for the period, this acquisition price must be immediately offset against the amount paid when calculating the amount of expenditure incurred from the financial arrangement in that year.

(6) Paragraphs (3) and (4) will not apply if the Specified MCCN itself provides for the Coupon Interest Payment to be allocated between the buyer and the seller on a basis which reflects the time for which each party held the Specified MCCN during the interest period in which the sale was made.

7. Examples

Example A

On 27 June 1995 Specified MCCNs with a five year term, are issued for $100 with an interest coupon of 9% p.a. payable half-yearly in arrears. Pursuant to a notice given by the noteholder on 27 April 1996, the Notes are converted on 27 June 1996 to 100 shares in the issuing company. Interest is not payable for the 56 day period prior to any conversion arising before the specified maturity date.

The market value of each share on 27 June 1995 is $0.90. By conversion date this has risen to $1.50.

Both the issuer and the holder use a 31 March balance date and apply Determination G1A on a 365 day basis when apportioning daily income and expenditure.

The Coupon Interest Payments are made as follows:

27 December 1995 .......................... $4.50

27 June 1996 ............................. $3.12

                                  -----

                                  $7.62

(a) Year Ended 31 March 1996

Coupon payment 27/12/95 $4.50

Apportionment of coupon payment due on 27/6/96 (the apportionment is based on the position as at 31 March 1996 when the coupon expected to be paid is still $4.50 as no notice has been given by the noteholder at that date).

There are a total of 182 days in the period between payments. Of these, 94 are in the year ended 31 March 1996.

94/182 × $4.50 = $2.32

Income/Expenditure $6.82

(b) Year Ended 31 March 1997

As the Note matures in this year the base price adjustment (section EH4 of the Act) is required. The formula a – (b + c) is applied:

a = the sum of all amounts paid ($7.62)

b = acquisition price

c = income/expenditure in previous years ($6.82).

As all amounts other than the coupon payments are attributable to the underlying shares, the issue price and sharemarket value can be ignored for the purposes of calculating income and expenditure. This effectively gives the Notes an acquisition price of nil (for accrual purposes). Therefore, in this example “b” has a value of zero.

Income/Expenditure = a – (b + c)

             = $7.62 – (0 + $6.82)

             = $0.80

Example B

On 27 June 1994 Specified MCCNs are issued for $100 with an interest coupon of 9% p.a. payable half-yearly in arrears. The Notes are mandatorily convertible on 27 June 1999 to 100 shares in the issuing company. Interest is not payable for the 56 day period prior to any conversion arising before the specified maturity date. The issuing company amalgamates with another company, which is not a member of the same wholly owned group, on 30 September 1995, the other company being the surviving amalgamated company of a qualifying amalgamation. The Notes will now convert into shares in the amalgamated company.

Upon amalgamation the original holder of the Notes transfers the Notes to a new holder, who is a shareholder in an amalgamating company. The Coupon Interest Payment for the period in which the amalgamation takes place, which will be paid on the usual date, is split between the original holder and the new holder. The original holder is entitled to receive interest covering the period from the last interest date prior to the amalgamation up to the date of the amalgamation (ie $4.50 × 95/183 = $2.34. There are 183 days in the coupon period, and there are 95 days from the beginning of the period until the day the Notes are transferred.) Interest accruing from the amalgamation date until the next coupon payment date, (being $2.16), will be paid to the new holder on the Coupon Interest Payment date.

The market value of each share at issue date of the Specified MCCNs is $0.90. By amalgamation date this has risen to $1.50, and on conversion date to $4.00.