In the early Summer of 2011, the equity capital markets team in Jersey had a significant pipeline of initial public offerings awaiting admission to the various markets of the London Stock Exchange. We were advising groups from Russia, India, Israel, and a large number of Chinese domestic businesses across a whole range of sectors from natural resources to hotels and leisure to retail. By the end of that Summer all but two of those proposed listings were on hold - unrealistic valuations and lack of investor appetite played a part but the real killers were uncertainty and volatility. Market commentators estimated that at least £10 billion (and perhaps as much as £30 billion) of IPO activity had been postponed in the European market alone.
In the wake of that hiatus I wrote an article predicting or rather hoping that by the Autumn calmer heads (and markets) would prevail - bringing IPO activity back to life. Perhaps I should have learned from the painful mistakes of those much smarter than I that second guessing the markets in the current economic climate can only be a recipe for embarrassment. Calmer heads didn't and still haven't prevailed. The sovereign debt crisis, the Euro, bailouts, elections and scandals at the core if the fabric of the global financial system have all conspired to keep markets volatile and investors uncertain. Even the BRIC powerhouses of the global economy have started to feel the pain as global demand has faltered.
Twelve months on from my original article we are still staring down the barrel of an uncertain economic future - Europe in crisis, global economic indicators weakening and a US election on the horizon. The strange part is that despite the continuing uncertainty and without any discernable economic driver prospective IPO activity has come back very strongly from the end of quarter two. Most of the brokers with whom we deal simply shrug their shoulders when asked for an economic rationale, perhaps the market is becoming immune to the bad news, perhaps investor apathy is evaporating, or perhaps the world has become more realistic about valuation. Whatever the reason, the Jersey equity capital markets group is servicing more clients looking to raise funds on the London market than 12 months ago - most with firm dates for admission. Demand is again particularly strong from Chinese originators across all sectors. What has been particularly exciting for the group has been the opportunity to advise on both the Mauritian and Jersey elements of a number of potential Indian originated deals in the leisure and renewable energy sectors. The group offices in Mauritius and Seychelles are often the first port of call for clients in these and other developing markets. Using a Jersey company as group listing vehicle offers a number of potential benefits:
- Jersey is a highly regulated tax neutral jurisdiction. There is no corporation tax, capital gains tax or capital transfer tax. There is no requirement for a Jersey company to make any withholding or deduction on account of Jersey tax in respect of dividend or interest payments.
- Using a Jersey company as the vehicle for an IPO may enable a foreign trading group to access London's capital markets without becoming liable to UK tax (UK tax advice should be taken and followed in every case). Mind and management of the company can be based on Jersey.
- Jersey companies with a market capitalisation of more than £10 billion are listed on a number of markets on the world's leading stock exchanges including: London Stock Exchange (Main Market, AIM, PLUS), Euronext (Amsterdam, Paris), Luxembourg Stock Exchange, Stockholmborsen (NASDAQ OMX), Hong Kong Stock Exchange, New York Stock Exchange (NASDAQ, Euronext) and Toronto Stock Exchange.
- Jersey companies have unlimited capacity. Share capital can be denominated in any currency and issued in any number of classes. No par value shares are also available.
- A Jersey public holding company is comparable to a UK PLC. Jersey Companies Law is based on similar UK legislation which is familiar to investors around the world - although Jersey law is frequently a simplified version of that which applies in the UK. Jersey's Companies Law provides a greater degree of flexibility particularly in relation to pre-emption rights, distributions and repurchases of shares. In addition the financial assistance rules have been abolished.
- Treasury shares allow effective management of share capital.
- Shares in Jersey companies can be traded in uncertificated form and are eligible for admission into the CREST trading system. Three well known CREST enabled share registrars are present in Jersey.
- Incorporated and Protected Cell Companies are available.
- Jersey now has the provisions of the UK takeover code enshrined in its legislation.
- The introduction of cross border merger regulations allows foreign companies to merge with a Jersey company providing potentially significant tax advantages.
- Located in the Euro time zone bridging US and Asian markets Jersey is OECD white listed and was voted no. 1 for all (onshore and offshore) jurisdictions in an International Monetary Fund report dealing with multilateral initiatives against money laundering, terrorist financing and tax evasion.
- There are no foreign exchange controls which limit a Jersey company's ability to hold foreign funds or securities.
In addition to advising Jersey holding companies Appleby also advises on a number of Guernsey and Isle of Man holding vehicles looking to list on the London market. The three crown dependencies together account for more than 28% of the non UK companies listed on the London market, so whether the choppy waters continue or the calmer heads prevail we are hopeful for a strong year ahead.
As originally appeared in JEP – Finance Industry Review, September 2012
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