ASIC RG45 Compliance
Balmain AQUA wishes to advise that it complies with the ASIC benchmarks as set out
in the Regulatory Guide 45 available from ASIC at
http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/rg45.pdf/$file/rg45.pdf
Please see the information below with regards to additional disclosure in
compliance with the above.
Benchmark 1 – Liquidity
- The Balmain AQUA Income Trusts and Debt Pools currently maintain high levels of
liquidity (circa 50% in aggregate), which is believed to be sufficient to meet
estimated redemption requests for the next three months.
Benchmark 2 – Scheme Borrowing
- The Balmain AQUA Income Trusts and Debt Pools have no borrowings and does not
currently intend to undertake borrowings in the future, however the Trusts’ and
Pools’ Constitutions do permit them. If the Responsible Entity were to resolve
to utilise this borrowing capacity it expects that borrowing levels would not
exceed 20% of the particular Trust’s assets and would normally be short term in
nature.
Benchmark 3 – Portfolio Diversification
- Balmain AQUA has changed the way in which it reports portfolio information in
order to comply with this benchmark. See the latest quarterly report for current
portfolio information.
- Please see our procedures guide and loan term guidelines located at here and
here for processes which pertain to the loan portfolios of the Funds.
- Balmain AQUA does not currently engage in the use of derivatives of any kind.
Previous offer documents have allowed for the Responsible Entity to use
derivatives for the purposes of managing interest rate risk only. It is the
policy of the Manager that derivatives will not be used for speculative
purposes.
- The Balmain AQUA Income Trusts do not invest in any unlisted mortgage schemes not
managed by Balmain AQUA, other than the Balmain AQUA Debt Pools through which they
gain their exposure to mortgage assets.
Benchmark 4 – Related party transactions
- Balmain AQUA does not currently lend to related parties, nor borrow from them,
and it is not the intention of Balmain AQUA to undertake related party
transactions in the future. Were a circumstance to arise where this were to
occur however, Balmain AQUA would be subject to the conditions of related party
transactions set out by Permament, Trust Company Limited (Responsible Entity to
the Trusts) in their Related Party policy. This policy is available on request.
Benchmark 5 – Valuation policy
- In the loan approval process, Balmain AQUA values income producing properties on
a capitalisation of income basis, and values development properties on both an
"as is" and "as if complete" basis.*
- Valuations are generally only obtained for properties once throughout the
lifetime of a loan with a 3 year revaluation clause in place, or as needed
should Balmain AQUA believe there have been significant changes to either the
value of the property or to the circumstances of the loan.
- Balmain AQUA uses a set panel of qualified valuers who undertake valuations on
its behalf, with no individual valuer undertaking more than one third of the
valuations of the portfolio based on the total number of loans.
- Each individual valuer cannot value a single property more than twice.
Benchmark 6 – Lending Principles (loan-to-valuation ratios)
- In some cases the Balmain AQUA Mezzanine Debt Pool has lent above the ASIC
recommended 80% LVR limit for investment property. The Mezzanine Debt Pool’s LVR
limit, as detailed in both our Loan Product Term Sheets and former offer
documents has been 90%, however since Regulatory Guide 45 was released, the
Manager has not been lending at these ratios.
- Where a loan relates to property development Balmain AQUA reports its lending
ratios on a Loan to Development cost (LDCR) basis, rather than an "as if
complete" basis. We believe this more accurately reflects the risk involved in
the transaction as it does not take the prospect of profit into account. The
average LDCR’s vary dependent on which Trust you invest in, however the Trust’s
never lend above a 90% LDCR in the case of the Mezzanine Debt Pool or beyond 80%
LDCR in the case of the Construction Debt Pool.
- From time to time, the LVR’s or LDCR’s of individual loans may be higher than
those outlined above. This will generally only occur in the instances of arrears
or defaults on individual loans where the manager elects to increase the
exposure to a higher level as the most efficient method of managing and exiting
the loan.
Benchmark 7 – Distribution practices
- All income generated by the Balmain AQUA Trusts is derived from the interest paid
by borrowers to the Trusts, or the return from "cash" and similarly liquid
investments.
- A small percentage of each distribution is composed of capital due to rounding
in the unit price, but this is very minimal.
- If an investor were to enter a Trust towards the end of the month, the unit price
when they invest will be based on counting all the income that has accrued to
the Trust during that month. At the beginning of the month, income will be
distributed and the unit price will decrease proportionately. Therefore, if an
investor were to enter a Trust just before a distribution, some of their capital
may be distributed back to them in the form of income for the first month.
Benchmark 8 – Withdrawal arrangements
- As has been disclosed in all previous offer documents, Balmain AQUA intends for
the proceeds of any withdrawal to be available 7 days from the date of
processing in ordinary circumstances. However, investors should be aware that
the Constitutions of the Funds and Pools provide that the Responsible Entity may
take up to 12 months to process a withdrawal request, as it may take that long
to sell the investments of the Pools to fund the withdrawals and in certain
circumstances, the RE may also suspend withdrawals beyond 12 months where it is
believed to be in the best interests of investors.
- The Balmain AQUA Income Trusts and Debt Pools are currently suspended to all
withdrawals. Please see the news page to view information leading to the
decision to implement this suspension.
* Refer to the second point under Benchmark 6 for further details.