Indian companies are increasingly looking to list on the UK markets. Ben Robins and James Ruane explain why Jersey has become the ideal jumping-off point for investors from the subcontinent
With some equity markets beginning to thaw, it is likely that we will see an increasing number of IPOs in Europe and elsewhere over the coming months, and Indian companies are expected to be among those looking to list.
In recent years there has been considerable growth in the number of businesses choosing a Jersey company as a holding company to list on London’s key exchanges, namely the main market and Alternative Investment Market (AIM) of the London Stock Exchange (LSE) and the Plus market.
With this growth Jersey companies have established a strong reputation with investors. In fact, at the time of writing, all the companies in the FTSE100 with a holding company incorporated outside the UK have a Jersey holding company and, on AIM, Jersey companies outnumber Isle of Man companies 2:1.
In addition to European stock exchanges, Jersey companies are also listed on other global stock exchanges, including the New York Stock Exchange, Nasdaq, Euronext, the Toronto Stock Exchange and the Hong Kong Stock Exchange.
But why have Jersey companies been so popular as a listing vehicle and what benefits could a Jersey holding company offer Indian groups considering an IPO, or to Indian groups with an existing listing, whether in London, Europe, the US, Canada, Hong Kong or elsewhere?
Jersey companies can offer tax neutrality at the holding company level, no income or capital taxes in Jersey, no withholdings on account of Jersey tax on the payment of dividends or interest on loans, and no stamp duty or other similar taxes in Jersey on the issue or transfer of shares in a Jersey company.
However, Jersey is not a tax haven; it is highly regulated and is not a ’secrecy jurisdiction’. Nor is Jersey a jurisdiction such as Mauritius, Cyprus or Singapore with a network of double taxation agreements (DTAs). Instead, Jersey companies offer a tax-neutral platform for accessing equity capital markets outside India. In appropriate cases, therefore, we would expect to see the Jersey-listed vehicle owning a Mauritian subsidiary, which in turn holds shares in Indian group companies.
Robust but flexible
Jersey’s company law is based on the UK’s 1948 Act, which is recognised by investors around the world, but tends to be more flexible than current UK company law. For example, rules on distributions to shareholders are less strict, there are fewer restrictions on the transactions a company can enter into with its directors, directors’ duties are more straightforward and financial assistance rules have been abolished, including for public companies.
Jersey law is sufficiently flexible to permit a Jersey company’s memorandum and articles to accommodate the requirements of the relevant listing rules.
No UK stamp duty is payable on share transfers on the LSE, AIM or Plus, and shares in a Jersey company can be held and traded in uncertificated form through the Crest system, avoiding, if desired, the inconvenience and cost involved in issuing global depositary receipts. A Jersey company is eligible for inclusion in the FTSE100, 250 and other FTSE indices, giving access to a potentially larger range of institutional investors.
In addition, there are no exchange controls in Jersey and a Jersey company is free to acquire, hold and sell foreign currency and securities without restriction.
Jersey is also bound by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Funds for investment
India’s economic growth in recent years has also prompted ever increasing interest from international investors who, faced with challenging domestic markets and recognising India’s astonishing growth potential, wish to diversify into this vibrant emerging market.
Jersey has enjoyed a prominent role in the structuring of funds investing primarily in Europe, but many European fund promoters are increasingly looking at opportunities in the Brazil, Russia, India and China economies. Indian promoters have also recognised the potential of tapping global inward investment by using Jersey fund vehicles familiar to Middle Eastern and European investors.
What distinguishes Jersey from competitor fund jurisdictions is that since the introduction of its ’unregulated funds’ regimes in 2008, Jersey stands alone in offering a full spectrum of fund regulation, from rigorous regulation of publicly offered retail funds through to unregulated regimes, with lightly regulated expert investor regimes in between. This range of regulation makes Jersey uniquely flexible as a fund domicile. Jersey fund vehicles also enjoy the tax neutrality described above.
There are an increasing number of funds established for investment into India, including Indian real estate, infrastructure and private equity funds. The majority of the Jersey vehicles used have been feeder vehicles investing through Mauritian master fund structures. Mauritian vehicles have emerged as a favoured route for foreign investment into India, largely due to the favourable DTAs between Mauritius and India. However, certain international investors, particularly those in the Middle East and Europe, express a preference for routing their investment through a Jersey vehicle.
Jersey feeder funds can take any one of a variety of forms (ie unit trust, limited partnership, company or cell company), but the most commonly used vehicle for a Jersey/Mauritius feeder fund structure is a standalone Jersey company. The flow of distributions from India, through Mauritius, back up to Jersey, tends to work most neatly where a Jersey corporate structure is used because the bulk of Mauritian vehicles used for Indian investment are also companies.
The Jersey corporate feeder vehicles used for these Indian funds are managed and controlled from Jersey and supported by an ample domestic supply of high-quality, well-regulated service providers.
Jersey clearly recognises the importance of strong political, industrial and regulatory links being forged between finance industry stakeholders in the Island and their Indian counterparts, and much ongoing work is being done to build the necessary ’networks’ at all levels, with Jersey’s government (the States of Jersey) in particular offering tangible support and the Jersey Financial Services Commission reaching out to its Indian counterparts, including the Securities and Exchange Board of India.
Jersey’s Treasury Minister and the Director General of the Jersey Financial Services Commission headed a Jersey delegation that visited Mumbai and New Delhi in November 2009. Talks are well underway to put in place a tax information exchange agreement (TIEA) between Jersey and India.
Service delivery and substance
Jersey also offers significant advantages over rival international finance centres in terms of service delivery, political stability and economic substance.
In the same time zone as London, Jersey has a sophisticated finance industry, with 13,000 highly qualified professionals in law, accountancy, banking, investment and fund administration. The Island is economically and politically stable, with financial reserves and no government debt. As of the end of March 2009, there were banking deposits
of $317.2bn (£205.21bn) in Jersey and the net asset value of investment funds administered in Jersey was $348.4bn.
Excellent international reputation
At a time of increased scrutiny of the regulatory and fiscal cooperation of finance centres, it will be of great comfort to those structuring Indian (and other international) transactions that Jersey finds itself in the top division of global compliance. The Island is well regarded by international regulators as a jurisdiction that has cooperated
fully with multilateral initiatives against money laundering, terrorist financing and tax evasion:
- Jersey is fully committed to transparency in tax matters. It has a comprehensive and growing network of TIEAs, which ensured that Jersey was among the nations immediately placed on the Organisation of Economic Cooperation and Development’s (OECD) ’white list’ of jurisdictions, having implemented internationally agreed tax standards. Jersey has also been invited by the French presidency of the OECD to be vice chair of the Peer Review Group of the OECD’s Global Forum, and has volunteered to be one of the first candidates for review of its TIEA network, regulation and policies as well as, critically, the effectiveness of their implementation.
- Jersey was among the first jurisdictions to become a full signatory to the International Organisation of Securities Commission’s Multinational Treaty, which establishes guidelines for broad multinational regulatory cooperation with information gathering.
- Jersey already has a wide and growing range of bilateral memoranda of understanding with other international regulatory authorities.
The International Monetary Fund’s (IMF) 2009 Financial System Stability Assessment reported that Jersey is in the top division of international finance centres, classed as being compliant or largely compliant with 44 of the 49 general Financial Action Task Force financial crime recommendations (a higher score than all EU member states and G20 nations recently assessed by the IMF), as well as very high levels of compliance with Basel and International Association of Insurance Supervisors core principles.
Ben Robins is head of funds and James Ruane is head of finance at Mourant du Feu & Jeune in Jersey