The Specialist Fund Market (the "SFM"), which was recently launched by the London Stock Exchange (the "LSE"), is an exciting development for structures such as single strategy hedge funds, feeder funds and private equity vehicles seeking a flexible and liquid market. As both UK and non-UK domiciled investment entities are eligible to seek admission to the SFM, sponsors and managers have the option to locate their investment entities in tax neutral, well-regulated off-shore jurisdictions, such as the Isle of Man.
Isle of Man companies have built up an impressive track record for successfully raising funds via London's capital markets with a majority of such companies targeting institutional investors (rather than the general public).
Recent research has shown that 15 of the top 100 companies listed on AIM are incorporated in the Isle of Man, more than twice as many as Bermuda (5) and Canada (5) and that the combined market capitalisation of the top 100 AIM listed companies incorporated in the Isle of Man amounts to £6240.04 million1 (which is more than twice the equivalent figure for Canada (£2268.19 million) and the British Virgin Islands (£1926.04 million)).
Isle of Man companies are also regularly used to access the LSE's main market. For example, Kazakhstan Kagazy plc, a major industrial group responsible for Central Asia's largest paper and packaging producer and one of the leading commercial real estate development companies in Kazakhstan, was admitted to the LSE's Official List in July 2007 and effected an offer of shares in the form of global depository receipts.
The benefits of using an Isle of Man company to access the SFM include:
- the Island's first-class reputation as a well regulated international financial centre (reinforced by Moody's and Standard & Poor's "AAA" accreditation);
- the Island's favourable tax regime: a zero per cent tax rate for companies and no capital gains tax, inheritance tax, stamp duty or SDRT;
- the ability to list an Isle of Man company without the need for prior regulatory approval (on the basis that the Isle of Man company is a closed-ended investment company);
- the Island being within the same time zone as, and within an hour's flying time from, London;
- the similarity of the Island's company law with English company law: as such, investment banks, institutional investors and their advisers are comfortable dealing with Isle of Man companies (in the instances where the Island's company law does differ from English company law, it is usually possible to tailor a company's articles of association to give the company a more "English" feel and, thus, meet the expectations of institutional and sophisticated investors);
- shares in Isle of Man companies are capable of being held in dematerialised form through CREST without the need to put in place complex depositary arrangements;
- an Isle of Man company can have shares denominated, and can prepare accounts, in any currency; and
- professional advisers on the Island (lawyers, accountants and bankers) are knowledgeable about, and experienced in servicing the needs of, sophisticated investment entities such as hedge funds and private equity vehicles.
Type Of Companies
Sponsors and managers electing to locate their investment entities on the Isle of Man have the choice of using one of the following two corporate entities:
- a company incorporated under the Isle of Man Companies Acts 1931-2004 (a "Traditional Company") which is very similar to a company incorporated under the English Companies Act 1985 (as amended); or
- a company incorporated under the Isle of Man Companies Act 2006 (a "New Manx Vehicle" or "NMV") which is legally robust yet more flexible and easier to administer than a Traditional Company.
The investment entity could also be structured as an Isle of Man limited partnership.
Neither a Traditional Company nor an NMV seeking access to the SFM would be required to comply with any prescriptive Isle of Man prospectus requirements as any offer made by such a company would be restricted to institutional and sophisticated investors.
Due to its increased flexibility and ease of administration, it is likely that the NMV will soon become the Manx corporate vehicle of choice for listings (Kazakhstan Kagazy plc is an NMV). An NMV may, for example, declare and pay dividends and purchase, redeem or otherwise acquire its own shares subject only to meeting a statutory solvency test. Furthermore, an NMV is not subject to any financial assistance prohibitions, accounting requirements are less prescriptive than for Traditional Companies and there are relatively simple merger and consolidation procedures.
Cains has extensive experience in advising Isle of Man companies seeking access to capital markets. Over the past few years, the firm has acted on over 27 listing transactions including:
- Close High Income Properties plc (London Stock Exchange – 2003, 2004 & 2005)
- Nikanor plc (AIM - 2006)
- Lamprell (AIM – 2006)
- Kazakhstan Kagazy plc (London Stock Exchange – 2007)
Our experience enables us to provide a service that is both efficient and cost-effective.
1 Based on market closing prices 20 September 2007
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.