NP 11-203 -- Application for relief from requirement to incorporate by reference the financial statements of an equity method investee which are included in the Filer's Form 20-F -- Relief granted subject to conditions.
Applicable Legislative Provisions
National Instrument 44-101 Short Form Prospectus Distributions, sections 3.1, 3.2, and 8.1.
Form 44-101 F1 Short Form Prospectus, Item 11.
February 23, 2015
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (THE JURISDICTION) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF BROOKFIELD INFRASTRUCTURE PARTNERS L.P. (THE FILER)
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Filer from:
(a) the requirements in Item 11.1 of Form 44-101F1 -- Short Form Prospectus (Form 44-101F1) to incorporate by reference the Myria Financial Statements (as defined below) into the short form base shelf prospectus (the Base Shelf Prospectus) of the Filer dated June 4, 2013 and any prospectus supplement thereto (together with the Base Shelf Prospectus, the Prospectus) (the Incorporation by Reference Requirements); and
(b) the requirements of section 3.1 and section 3.2 of National Instrument 44-101 -- Short Form Prospectus Distributions (NI 44-101), to the extent such sections would deem the Myria Financial Statements to be incorporated by reference in the Prospectus (the Deemed Incorporation by Reference Requirements),
(together, the Exemption Sought).
Furthermore, the principal regulator in the Jurisdiction has received a request from the Filer for a decision that the application and this decision be kept confidential and not be made public until the earlier of: (a) the date on which the Filer issues a news release announcing that the Filer has entered into an agreement relating to an offering of securities under the Prospectus (as defined below); (b) the date on which the Filer otherwise publicly announces an offering of securities under the Prospectus; (c) the date on which the Filer files a prospectus supplement relating to an offering of securities under the Base Shelf Prospectus; (d) the date on which the Filer advises the principal regulator that there is no longer any need for the Application and the decision document to remain confidential; and (e) the date that is 90 days after the date of the decision document (the Confidentiality Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Yukon and Nunavut.
Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a Bermuda exempted limited partnership that was established on May 21, 2007.
2. The Filer's head and registered office is located at 73 Front Street, Hamilton, HM 12, Bermuda.
3. The limited partnership units of the Filer are listed on the New York Stock Exchange and the Toronto Stock Exchange under the symbols "BIP" and "BIP.UN", respectively.
4. The Filer is a reporting issuer in all of the provinces and territories of Canada and is an SEC foreign issuer within the meaning of section 1.1 of National Instrument 71-102 -- Continuous Disclosure and Other Exemptions Relating to Foreign Issuers.
5. The Filer is subject to Sections 13 and 15(d) of the U.S. Securities Exchange Act of 1934, as amended (the 1934 Act), and has filed all reports required to be filed with the United States Securities and Exchange Commission (the SEC) under the 1934 Act.
6. The Filer is, to the best of its knowledge, in compliance with the requirements of the U.S. Securities Act of 1933, as amended, and the 1934 Act.
7. The Filer is not in default of any requirement of the Legislation or equivalent legislation in any of the provinces and territories of Canada.
8. The Filer will include a statement in each supplement to the Base Shelf Prospectus explaining that the Filer has received exemptive relief exempting the Filer from the requirement to incorporate by reference the Myria Financial Statements in such prospectus and identifying the exemptive relief decision.
9. Pursuant to Regulation S-X, Rule 3-09 (Rule 3-09), a provision of U.S. securities regulation with no Canadian equivalent, the Filer has included financial statements of Myria Holdings Inc. (Myria or the North American gas transmission operation), an equity method investee, as of December 31, 2013 and 2012 and for the years ended December 31, 2013 and 2012, the six months ended December 31, 2011 and the year ended June 30, 2011 (the Myria Financial Statements) in its 2013 Form 20-F/A, Amendment No. 1 dated April 30, 2014 (the 2013 Form 20-F/A), amending the Filer's 2013 Form 20-F for the fiscal year ended December 31, 2013 dated March 28, 2014 (as amended by the 2013 Form 20-F/A, the 2013 Form 20-F).
10. If the Exemption Sought is not granted, then by virtue of the Myria Financial Statements being included in the 2013 Form 20-F, the Filer will be required to incorporate the Myria Financial Statements into the Prospectus under Item 11.1(1) of Form 44-101F1.
11. The Filer applies International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS). As required by IAS 28 (2011), Investments in Associates and Joint Ventures (IAS 28), the Filer applies the equity method of accounting for its interest in Myria. Furthermore, in accordance with IAS 16, Property, Plant and Equipment (IAS 16), the Filer uses the revaluation method of accounting for all classes of its property, plant and equipment, and this policy is applied to the property, plant and equipment within the Filer's North American gas transmission operation in accordance with paragraph 35 of IAS 28.
12. In 2013, the Filer's North American gas transmission operation was impacted by weak market fundamentals in the U.S. natural gas market. Consequently, the revaluation of property, plant and equipment within the Filer's investment resulted in an impairment charge of US$275 million. The impairment was recorded in the statement of operating results for the year ended December 31, 2013 and, as the charge represents a write-down of property, plant and equipment within an investment in an associate, it was recognized within the share of (losses) earnings from investments in associates line item on the Filer's consolidated statement of operating results.
13. Rule 3-09 references significance tests prescribed by Article 1-02(w) of Regulation S-X. One of the tests, the "income test", when applied giving effect to the above-noted impairment charge, resulted in the conclusion that separate financial statements of Myria were required to be included in the 2013 Form 20-F, and accordingly the Filer filed the 2013 Form 20-F/A. This determination of "significance" under Rule 3-09 was driven exclusively by the above-noted impairment charge.
14. Prior to the year ended December 31, 2013, the Filer's North American gas transmission operation had consistently not met the significance threshold under the income and investment tests of Article 1-02(w) of Regulation S-X and, absent the above-noted impairment charge, would not have been considered significant to the Filer's 2013 results. The results of the significance tests applied to the North American gas transmission operation (except in the case of the 2013 calculation taking into account the impairment charge) are indicative that this operation is not significant under Rule 3-09 or otherwise material and does not require disclosure in the form of separate historical financial statements.
15. In addition, the Filer's North American gas transmission operation assets are now classified as "held for sale", as reflected in the Filer's press release dated February 3, 2015 reporting the Filer's year-end financial results.
16. The "significance threshold" under Rule 3-09 is met in respect of one year only and solely due to an unusual accounting charge, has not been met in the past, and is unlikely to be met in the future.
17. There is no provision in Canadian securities regulation that is equivalent to Rule 3-09. As such, the Myria Financial Statements would not be required under Item 11.1 of Form 44-101F1 to be incorporated by reference into a short form prospectus of an issuer that files annual information forms on Form 51-102F2 -- Annual Information Form instead of Form 20-F.
18. The Filer has used all reasonable efforts to obtain the consent of the auditors of the Myria Financial Statements to the incorporation by reference of their auditors report in the Prospectus but has been unable to obtain their consent.
19. The 2013 Form 20-F contains sufficient disclosure on the North American gas transmission operation to meet the requirements of Section 5.7 of National Instrument 51-102 -- Continuous Disclosure Obligations. In addition, the Filer has undertaken certain disclosure enhancements in order to provide the Filer's financial statement users with relevant information pertaining to the impairment charge recorded in the Filer's investment in Myria. In particular, Note 12 beginning on page F-44 of the 2013 Form 20-F includes the following:
(a) enhanced disclosures pertaining to the impairment charge that would have been required under IAS 36, Impairment of Assets (IAS 36) as if the Filer's North American gas transmission operation were a consolidated investee;
(b) the disclosures that would have been required by IFRS 13, Fair Value Measurement (IFRS 13), as if the Filer's North American gas transmission operation were a consolidated investee; and
(c) summarized financial information presentation requirements for equity method investees required by IFRS 12, Disclosure of Interests in Other Entities (IFRS 12), specifically those outlined in paragraphs B12 and B134.
20. The Filer has considered whether the inclusion of the Myria Financial Statements would provide meaningful incremental information to investors in light of the disclosure enhancements described above, and has concluded that this incremental information does not provide any additional meaningful information other than what is included in the 2013 Form 20-F. In making this determination, the following considerations were of primary importance:
(a) The financial statements of Myria are prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP), whereby the revaluation method is not available as an accounting policy choice for the measurement of property, plant and equipment. Measurement of property, plant and equipment significantly impacts the reported results of the Filer's North American gas transmission operation, making the reporting results of the Filer determined in accordance with IFRS difficult to compare to the results determined in accordance with U.S. GAAP in the financial statements of Myria.
(b) Similarly, the carrying values of property, plant and equipment of the Filer's North American gas transmission operation are significantly different in the Filer's equity accounted investee balance than the carrying values of property, plant and equipment in the U.S. GAAP financial statements of Myria. This differential is due to the difference in the cost at which the Filer initially acquired its interest in the North American gas transmission operation compared to the value of the underlying assets that are reflected in the Myria Financial Statements.
(c) Although Myria recognized an impairment charge under U.S. GAAP as a result of the same weak market fundamentals in the U.S. natural gas market, due to the different cost basis and the fundamental difference in the measurement models for items of property, plant and equipment under U.S. GAAP and IFRS, the impairment charge recognized under U.S. GAAP is not comparable to the impairment charge recognized under IFRS.
(d) No material events requiring disclosure under either U.S. or Canadian regulations pertaining to the Filer's investment in Myria have occurred since the filing of the 2013 Form 20-F.
21. The Filer is of the view that the additional disclosure provided in note 12 to the 2013 Form 20-F contains sufficient information about the financial position of Myria on a basis that is consistent with that used in the Filer's consolidated financial statements.
22. The Prospectus, together with the documents incorporated by reference therein, will provide full, true and plain disclosure of all material facts relating to the securities to be distributed without incorporating by reference the Myria Financial Statements.
23. The securities to be offered under the Prospectus are not proposed to be offered in the U.S. except to the extent that an exemption from the registration requirements of U.S. securities laws is available.
24. The Filer does not intend to conduct an offering in the U.S. in the future that would require the inclusion of the Myria Financial Statements in the applicable U.S. offering document.
25. The Filer does not anticipate requesting exemptive relief from the SEC to exclude the Myria Financial Statements from an applicable U.S. offering document in connection with an offering in the U.S.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
26. the Filer complies with all of the other requirements of NI 44-101 and National Instrument 44-102 -- Shelf Distributions, except as varied by this Decision, any other exemption orders obtained from the appropriate securities regulatory authority, or as permitted by the Legislation;
27. any prospectus supplement for any future offering of the Filer under the Base Shelf Prospectus incorporates by reference:
(a) the most recent Annual Report on Form 20-F of the Filer filed with the SEC, excluding the Myria Financial Statements if applicable; and
(b) any Annual Reports on Form 20-F of the Filer filed with the SEC, excluding the Myria Financial Statements if applicable, required to be filed with the SEC or the Decision Maker, as applicable, subsequent to the date of the Prospectus, but prior to the termination of the particular offering; and
28. the representation in paragraph 8 remains true.
Furthermore, the decision of the principal regulator is that the Confidentiality Sought is granted.