Co-op and mutuals introduce new financial instruments for investors

26 June 2019

New opportunities to increase competition and choice

The Business Council of Co-operatives and Mutuals (BCCM) held a symposium to explain how the newly available Capital Raising for co-ops and mutuals will work. Earlier this year, landmark legislation was passed to allow co-ops and mutuals the ability to raise capital to expand their business offerings.

Peter Hunt, Managing Partner at Mutuo, said, “This is the first time these financial instruments will be available in the Australian market and we expect they will be as popular here as they are around the world. Federal co-ops and mutuals will now be able to access investment capital without the risk of demutualising and whilst maintaining member control.

“Mutual capital instruments are shares that pay a dividend, however these unique kinds of securities are only available to co-ops and mutuals and have three distinct differences. Each shareholder receives no more than one vote regardless of how many shares they hold, dividends are based on published distribution policies and holders do not receive an entitlement to ownership in the underlying value of the co-op or mutual.”

Mr Hunt added, “Most important to note is that the structure of co-ops and mutuals will not change. They will continue to focus on their members and contributing to their communities and not for the purpose of capital providers. The additional capital will allow these ethical companies to grow rather than being restricted to operate within retained earnings and debt. As many mutuals already service debt finance, the new distributions will similarly not dominate the business.”

Melina Morrison, BCCM’s CEO, said, “BCCM and Mutuo proposed and promoted this legislation because it is important for our members to be able to access capital so they can compete with larger, listed companies. This has been a long process that we started in 2015, but we are delighted that we achieved the results for our members. This will allow them to take advantage of these financial instruments and grow to their full potential.  Investors will also benefit from the ethical investment and the successful business models co-ops and mutuals provide.”

BCCM and Mutuo initially proposed the legislation to the Senate Economic References Committee in 2015. In 2016, Prime Minister Scott Morrison, who was the Treasurer at the time, appointed Greg Hammond OAM to review the Senate Committee’s recommendations. The Hammond Review was delivered in 2018, and following the Government’s acceptance of his recommendations, the capital raising legislation was passed through both houses earlier this year.