Assessing who has discretion over the redemtpion of the preference shares

[Leo]

In a situation where a subsidiary issues preference shares to its parent (100% ownership), the terms state that only the subsidiary has discretion over the redemption of the principal and dividend. A such decision is taken by the board.

However, considering that the board is appointed by the shareholder, which is the parent, in this situation, can we still say that the prefs are equity because it's at the issuer's discretion?

[Marek Muc]

The FICE ED aims to address this types of scenarios:
https://www.ifrs.org/content/dam/ifrs/p ... df#page=14

[Leo]

Thanks so much Marek, that's not been addressed yet, so equity wouldn't be disallowed as I understand.

[Leo]

I guess that sometimes, when the redemption of the prefs is contingent to certain events, e.g., IPO, liquidation, sale etc. When it's within the capacity of the issuer, then it's equity because the issuer have control over the occurrence of the event.

However, if the issuer is a sub of another parent, then, one should also assess whether its the parent that has the power over any decision made by the company. (for example, the decision are made by the board of directors however, appointed y the parent), then, the considerations would be the same then the draft discussion you shared?

Then again, seems like a grey area, so, one can argue for or against. Do you agree?