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The Australian Small Scale Offerings board handles three types of offerings:
1) Equity Offerings
2) Debt Offerings
3) TIC Property Offerings
Equity Offerings refer to opportunities to purchase equity (shares) in companies prior to them being listed on an exchange like the ASX. Generally, most equity offerings made through ASSOB are in Unlisted Public Companies that have either an exciting technology or a unique product with global opportunities.
In the past, the public has had nowhere to go to access genuine early stage equity offerings because those opportunities have previously been made available only to people connected to the founders or to Venture Capitalists and Investment Bankers with their finger on the pulse. Here, for the first time, you can get the inside track on some of Australia’s most exciting investment opportunities.
Two reasons why Public Companies are preferred (over Pty Ltd companies) by savvy investors…
Public Companies are generally considered to be more investor friendly than Pty Ltd companies for two main reasons:
a) There is no statutory requirement for Pty Ltd companies to prepare Financial Statements… they only have to keep records. The problem with this of course is that these records could be (and quite often are) kept in a shoebox under the bed. Not very investor friendly. Public Companies however must prepare Financial Statements and have those statements audited by an independent auditor.
b) The second reason Public Companies are generally considered to be more investor friendly is because they have to have three Directors as opposed to one in a Pty Ltd company. This means there’s more people “watching the shop” so to speak. Further, Directors in Pty Ltd companies can refuse the transfer of shares for any reason without giving a reason, whereas Directors in Public Companies have no such power. Again, another reason why Public Companies are the preferred entity for savvy investors.
The second type of offerings available through ASSOB are Debt Offerings. These offerings refer to “Debt Securities” that you can purchase. Mainly, we handle “Promissory Notes” which many people have heard of but don’t really understand. Perhaps the best way to explain how a Promissory Note or Debt Security works is to give you an example.
Let’s first look at a Promissory Note. To begin with, it is important to understand the section of the law under which Promissory Notes are made effective. Everyone is familiar with how a cheque works. Cheques are recognised as a legal form of payment. If you “bounce a cheque” you have committed fraud and the person who got stung can walk up to the court house and get an immediate judgement in their favour against the offending cheque maker. No court case, no trial…just a court order forcing the cheque maker to pay immediately or face jail. Effectively, a cheque is the strongest form of contract because they are made under the Bills Of Exchange Act 1909. This same act governs Promissory Notes.
Let’s give you a practical example. Imagine you are selling a coffee shop for $150,000 and you find a willing buyer who only has $50,000 but is unable to secure a bank loan for the balance. Using a Promissory Note you could offer them “vendor finance” for the balance with the terms of the loan, including interest rate and security all laid out in the Note. This Note (which looks just like a certificate) is then signed by the buyer and witnessed by a Justice of the Peace. It then becomes what is called a “Debt Security” which is treated just like a cheque. In other words, failure to honour the commitment as laid out in the note is treated as fraud.
In the case of the coffee shop, the business is worth $150,000. The buyer has $50,000 of their own money on the line and the other $100,000 is owed to the note holder at an interest rate of say 12% PA. Having an operator in place who has a significant financial interest in the business is a good start to making sure that the note is honoured. The note may also specify security over the shop itself or other assets. The more security and equity provided by the borrower, the stronger the note.
Sometimes, people who hold these notes (or securities) want to sell them at a discounted rate to an investor. That’s where we come in. Through ASSOB, you can buy these notes (which generally have motivated people on one end like the guy who bought the coffee shop) who often provide security (like the coffee shop itself) if they default on the terms of the note.
So you might see that note returning 12% on its face value of $100,000 for sale here for $80,000. The annual interest rate on $100,000 amounts to $12,000 PA. If you buy the note at $80,000 your actual return is 15%...about 3 times what you’ll get if you put that same $80,000 in the bank. ($12,000 interest against $80,000 in principal = 15%).
If you look in our Investor Resources section, you will be able to download a due diligence checklist which will assist you in making sure that you purchase only high quality Promissory Notes secured by good operators with real assets tied in.
Debt securities may also include loan agreements or contracts. For example someone might have borrowed money under a loan agreement at an agreed interest rate and terms. That loan agreement is a debt security (just like a Promissory Note) which can be transferred to an investor, usually at a discounted rate.
The last kind of offering that you will find on ASSOB’s website is called a TIC Property Offering.
As property values continue to rise, the opportunity for ordinary people to enter the market is becoming increasingly difficult. However, people still want to participate. Small scale property syndication through Tenants In Common ownership allows two or more individuals, but not exceeding twenty, to own a fractional interest in a property. An example is where two or more (unrelated) investors wish to purchase a property. Tenant in common allows each investor to hold a separate and distinct share. As a tenant in common, investors have the potential to provide themselves with investment security, capital growth and rental income for minimal capital outlay. The upsides are plentiful: cheaper entry costs; stamp duty savings and there can even be tax advantages.
The main benefits are:
- Lower entry costs to Property investment
- Gives the investor direct title for the TIC percentage share held
- Borrowings can be negatively geared
- Can be willed, sold or mortgaged separately
The TIC structure opens the door to ownership of larger, higher-valued and better-located properties than an individual could afford independently. For example if four (4) TIC investors shared fractional ownership of an investment property, they each own an asset that is producing rental income, for very little outlay and still have the benefits of negative gearing and depreciation.
Owning a TIC share of a resort property is a bit like owning timeshare however, it comes with clear title – you actually own something more than merely time. One of the reasons people often give for purchasing a resort property outright is, “To use on holidays and let at other times” if this is so, then why not buy fractional ownership at a fraction of the cost?
Investors are discovering the beauty of co-ownership as a tenant in common where they can participate from as little as $10,000 deposit, with the balance negatively geared.
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