[Federal Register Volume 59, Number 204 (Monday, October 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-26278]
[[Page Unknown]]
[Federal Register: October 24, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20636; International Series Release No. 733; 812-9210]
Stadshypotek AB; Notice of Application
October 19, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANT: Stadshypotek AB.
RELEVANT ACT SECTION: Order requested under section 6(c) for an
exemption from all provisions of the Act.
SUMMARY OF APPLICATION: Applicant is a wholly-owned subsidiary of
Konungariket Sveriges stadshypotekskassa (also known as the Urban
Mortgage Bank of the Kingdom of Sweden) (``UMB''). Applicant seeks an
exemption under section 6(c) from all provisions of the Act. UMB was
established by the Swedish government to finance the acquisition and
development of residential and commercial properties in Sweden through
mortgage lending. UMB is being converted into a private sector limited
liability company. Applicant is the corporation through which this
privatization will be accomplished. As part of the privatization,
applicant intends to offer and sell a tranche of its common shares
(``Shares'') in the United States under rule 144A under the Securities
Act of 1933. In addition, applicant may offer and sell other debt and
equity securities in the United States in the future.
FILING DATES: The application was filed on September 7, 1994. Applicant
has agreed to file an amendment during the notice period, the substance
of which is incorporated herein.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on November 7,
1994, and should be accompanied by proof of service on applicant, in
the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Stadshypotek AB, c/o John Paul Ketels, Rogers & Wells, 607
Fourteenth Street, N.W., Washington, D.C. 20005.
FOR FURTHER INFORMATION CONTACT:
Marc Duffy, Senior Attorney, (202) 942-0565, or C. David Messman,
Branch Chief, (202) 942-0564 (Division of Investment Management, Office
of Investment Company Regulation) .
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicant's Representations
1. In 1909, UMB was established under a special act of the Swedish
Parliament to finance the acquisition and development of residential
and commercial properties in Sweden through mortgage lending. Before
December 31, 1992, the mortgage business now conducted by applicant was
conducted by (a) UMB, which was responsible for funding operations, and
(b) 20 regional urban mortgage societies, which were responsible for
lending operations. On January 1, 1993, the mortgage societies merged
with UMB, and UMB emerged as a holding company owning all of the assets
previously owned by the mortgage societies.
2. In 1992, the Swedish Parliament adopted legislation providing
for the conversion of UMB's business into a private sector limited
liability company. As part of the privatization, on January 1, 1993,
UMB contributed all of its assets to applicant in exchange for all of
applicant's capital stock and intercompany debt obligations. Applicant
has since been responsible for the operations of UMB.
3. Applicant is incorporated as a credit market company was limited
liability in Sweden. As of December 31, 1993, applicant's consolidated
total equity was approximately 11.28 billion Swedish Kronor (``SEK'')
(approximately U.S. $1.5 billion).
4. Applicant is subject to an extensive regulatory regime in Sweden
pursuant to the Swedish Act on Credit Market Companies. The Swedish
Financial Supervisory Authority (``SFSA'') is responsible in Sweden for
regulating applicant. Applicant does not make any loans outside of
Sweden.
5. Applicant, in addition to its principal business of extending
mortgage loans, issues retail market bonds. Retail market bonds are
debt securities issued in small denominations with maturities of
various lengths including 90 days, two years, and five years, which are
used as a means of competitively raising intermediate term funds.
Retail market bonds constitute a general obligation of applicant that
ranks pari passu with other general obligations of applicant. The
redemption price prior to maturity is established each day in relation
to the major public bonds of applicant. Applicant publishes on a daily
basis the price at which it will buy or sell retail market bonds of a
particular maturity. As of December 31, 1993, applicant had issued
approximately 11 billion SEK aggregate face amount of retail market
bonds, which constituted approximately 3.6% of applicant's short- and
long-term securities outstanding.
6. On August 31, 1994, UMB, as applicant's sole shareholder,
approved a plan to privatize applicant. To effect the privatization,
37,500,000 of applicant's Series A shares will be offered to the
public. Rights to subscribe for the shares will be allocated to
qualifying borrowers, qualifying employees of applicant, and UMB. If
all rights are taken up, a total of 75,000,000 shares will be owned by
the investing public and 42,500,000 by UMB. UMB's interest in applicant
will consist of 10,000,000 Series A shares and all of the 32,500,000
Series B shares. Although Series A and Series B shares have identical
voting rights, Series B shares will receive a dividend that is SEK 3.6
per share less than Series A shares. Series B shares will convert into
Series A shares in 1999.
7. In addition, international institutional investors will be
offered Class A shares of applicant, certain of which applicant wishes
to sell to U.S. ``qualified institutional buyers'' under rule 144A
under the Securities Act of 1933 (the ``Offer''). Afterwards, UMB will
own approximately 36% of the outstanding equity securities of
applicant. In addition, applicant may offer and sell additional debt
and/or equity securities in the United States in the future.
Applicant's Legal Analysis
1. Section 3(a)(3) of the Act defines an investment company to
include any issuer engaged in the business of investing, reinvesting,
owning, holding, or trading in securities, and that owns or proposes to
acquire investment securities having a value exceeding 40% of the
issuer's total assets, exclusive of Government securities and cash
items on an unconsolidated basis. Because all of the monies borrowed by
applicant from time to time are loaned to its customers, all or
substantially all of applicant's assets will consist of promissory
notes and other obligations of customers to repay such loans. Such
obligations could be deemed to be investment securities within the
meaning of section 3(a)(3). As a result, applicant may be deemed to be
an investment company.
2. Rule 3a-6 exempts foreign banks from the definition of
investment company for all purposes under the Act. A foreign bank is
defined to include a banking institution engaged substantially in
``commercial banking activity,'' which, in turn, is defined to include
``accepting demand and other types of deposits.'' While applicant
issues retail market bonds, it does not technically ``accept demand and
other types of deposits,'' and therefore may not be able to rely on
rule 3a-6.
3. Applicant believes that it is functionally equivalent to a
foreign bank because it issues financial products similar to those
issued by banks, and it is subject to an extensive alternative
regulatory scheme. Applicant argues that its customers view retail
market bonds like demand deposits or certificates of deposit offered by
banks. Applicant has issued approximately 20% of the outstanding retail
market bonds in Sweden; the other 80% of retail market bonds are issued
by commercial banks and the National Debt Office. Applicant believes
that retail market bonds are a unique savings product for the Swedish
market that would not be of interest outside of Sweden. Applicant has
no intention of offering retail market bonds in the United States now
or in the future. Applicant, however, may consider issuing bonds in
accordance with market practice and custom in the United States. Any
such issuance of bonds would be registered under the Securities Act of
1933 or made pursuant to an available exemption from registration.
4. Applicant is subject to extensive regulation by the SFSA, the
entity that also regulates banks in Sweden. As with Swedish banks,
applicant is subject to continuous filing requirements of financial and
other information with the SFSA, and to SFSA spot inspections. The
scope of applicant's business activities cannot be materially altered
without the approval of the SFSA. Moreover, applicant is subject to the
same capital adequacy requirements as Swedish banks.
5. Sections 3(c)(5)(C) of the Act excepts from the definition of
investment company any person who is not engaged in the business of
issuing redeemable securities and who is engaged primarily in
purchasing or otherwise acquiring mortgages and other liens on and
interests in real estate. Applicant states that it is engaged primarily
in purchasing or otherwise acquiring mortgages since 90% of its assets
consist of mortgage loans secured exclusively by real estate.
Applicant, however, may not be able to rely on the exception provided
by section 3(c)(5)(C) because the retail market bonds it has issued
could be deemed to be redeemable securities.\1\
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\1\A redeemable security is defined in section 2(a)(32) as any
security, other than short-term paper, under the terms of which the
holder upon presentation to the issuer is entitled to receive
approximately his proportionate share of the issuers current net
assets, or the cash equivalent thereof.
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6. Applicant does not believe that the issuance of retail market
bonds raises the concerns that led Congress to restrict section
3(c)(5)(C) to companies that do not issue redeemable securities. In
extending the regulatory provisions of the Act to mortgage entities
otherwise covered by section 3(c)(5)(C) that issue redeemable
securities, Congress sought to apply such provisions to ``those
companies which purport to model themselves after open-end companies by
issuing a security redeemable at the option of the holder.''\2\ Unlike
investors who invest in open-end investment companies relying on a pool
of assets for their return, investors in retail market bonds are
investing in short and intermediate fixed-term deposit instruments most
typically sold by banks. Applicant is not marketing a return on
interests in mortgage loans. Furthermore, unlike the holder of a
redeemable security, the holder of a retail market bond may redeem it
at a market price at the time of redemption and not for his or her
``proportionate share of the net assets.'' Applicant is not in the
business of issuing retail market bonds other than as a way of
competitively raising intermediate term funds to support its principal
business of making mortgage loans. Based on the structure and
organization of applicant, and the nature and characteristics of the
retail market bonds, applicant states that there is no need to be
concerned with investors being confused that applicant is a vehicle for
investing in mortgage pools.
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\2\Senate Report No. 184, 91st Cong., 1st Sess. 37 (1969).
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7. Section 6(c) of the Act provides that the SEC may exempt any
person or transaction from any provision of the Act or any rule
thereunder to the extent that such exemption is necessary or
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the Act.
8. Applicant was created by the Government of Sweden to provide
efficient mortgage financing for private households as well as property
companies and municipalities. Applicant is limited and controlled in
many respects as to the financings it can undertake and loans that it
can make by a strict regime of regulation implemented by the Government
of Sweden. Applicant asserts that its operations do not lend themselves
to the abuses against which the Act is directed. Consequently,
applicant believes that the standards for relief under section 6(c) are
satisfied.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-26278 Filed 10-21-94; 8:45 am]
BILLING CODE 8010-01-M
