Channel Islands-incorporated businesses will find all the expertise required to help them list on the Hong Kong Stock Exchange
In the past few years international finance centres such as Guernsey and Jersey have been stepping up their efforts to tap into the rich vein of international corporate transactions flowing through Asia. A focus of these efforts has been Hong Kong along with mainland China.
Guernsey and Jersey have made raising their respective profiles a priority so they can compete in Hong Kong with the more established offshore jurisdictions. Bermudan, British Virgin Islands (BVI) and Cayman Islands law firms have been practising in Hong Kong for a number of years.
Listings on the Hong Kong Stock Exchange (HKEx) have become a particular focus of attention in the quest for high-profile offshore work. The HKEx is currently the world’s largest exchange by market capitalisation. In 2010 more than $53bn (£33bn) was raised in IPOs on the HKEx – almost five times as much as in London.
Although there are indications that the HKEx is unlikely to match its performance of last year, there is an underlying trend for new issuers to seek listings where they anticipate gaining the highest growth in terms of customer base and long-term investor demand. Prada and Samsonite are recent examples, having listed on the HKEx in June.
On the list
The vast majority of companies listing on the HKEx do so through offshore holding vehicles. In 2007 the Hong Kong Securities and Futures Commission opened up the market to allow a wider group of non-Hong Kong companies to list. English, Bermudan and Cayman companies were already approved to list by dint of their established links with Hong Kong.
Most recently Guernsey was approved as an ’acceptable overseas jurisdiction’ for listings on the HKEx. A Guernsey company wishing to list its shares on the HKEx is now able to follow a streamlined listing process.
Guernsey is well-placed to offer its services to provide recognised tax-neutral corporate structures for HKEx listings, given its position as the most popular offshore jurisdiction for listing on the markets of the London Stock Exchange (LSE).
Based on information from the LSE as of 31 December 2010, promotional agency Guernsey Finance has calculated that Guernsey’s total number of listings in relation to the combined LSE markets was almost double that of any other offshore jurisdiction – Guernsey had a total of 106 listings, with its nearest offshore competitor having 66.
Guernsey companies are also listed, or have obtained approval to list, on a number of other international exchanges, including the Australian Securities Exchange, Euronext Amsterdam, the Frankfurt Stock Exchange, the Luxembourg Stock Exchange, the OMX in Stockholm, the SIX Swiss Exchange and the Toronto Stock Exchange.
Up to spec
The island has long enjoyed a strong reputation, offering investors the comfort of reliability, substance and appropriate regulation. In April 2009 Guernsey was designated by the Organisation for Economic Cooperation and Development as a ’white-listed’ jurisdiction, meeting agreed international tax standards for information exchange and cooperation. The island has a network of tax information exchange agreements with 24 countries, including Australia, Canada, China, Indonesia, Mexico the US and many European countries.
Guernsey has earned a reputation as a leading international finance centre with a record of attracting investment from around the world based on its high regulatory standards. It is politically, economically and financially stable, has a well-developed and trusted court system based on English common law principles and boasts experienced professionals working within a well-established finance industry.
Many businesses with an international reach – and ultimately their investors – can derive real advantage from having their holding companies incorporated, managed and controlled in a tax-neutral jurisdiction such as Guernsey.
In terms of offering a tax-neutral platform, the general rate of Guernsey income tax payable by companies that are tax-resident on the island is 0 per cent; there is no capital gains tax or capital transfer tax; no stamp duties or similar taxes are payable on the issue or transfer of a Guernsey company’s shares (although stamp duty may be incurred in the jurisdiction where its listed shares are traded); and there is no withholding or deduction of Guernsey income tax in respect of non-resident shareholders.
Guernsey’s corporate law is familiar and flexible. The Companies (Guernsey) Law 2008 (as amended) is largely modelled on previous English Companies Acts. Those same English laws also form the basis of the Hong Kong Companies Ordinance.
A Guernsey company’s constitution is therefore very similar to that of a Hong Kong company.
A Guernsey company’s memorandum and articles will be familiar to Hong Kong investors and will typically provide equivalent investor rights and protections. However, the Guernsey Companies Law also offers a degree of flexibility and allows any necessary changes to be made to a company’s constitutional documents to accommodate investor expectations and satisfy the listing rules of a particular stock exchange. Some examples of this familiarity and flexibility are considered below.
Protect and serve
There are no statutory pre-emption rights under Guernsey law, but pre-emption rights on the issue of shares are generally included in Guernsey companies’ articles, if these are required by the relevant listing rules, to enhance investor protection.
There are no statutory disclosure and transparency provisions under Guernsey law that require shareholders to disclose their interests in shares. However, it is quite usual to have these provisions built into a Guernsey company’s articles to reflect the requirements of the relevant stock exchange and investor expectations.
Guernsey companies may make a distribution out of any source of capital provided the company’s directors are satisfied that, in addition to meeting any requirements in the memorandum and articles, it is able to meet a statutory solvency test comprising a balance sheet test (that assets exceed liabilities) and a cashflow test (that the company can pay its debts as they fall due) immediately following the distribution. The ability of Guernsey companies to distribute from any source of capital may prove to be an advantage over companies incorporated elsewhere.
Similarly, a Guernsey company’s shares may be repurchased from any source provided that any requirements in its memorandum and articles are met and the solvency test is satisfied. Again, this gives Guernsey companies an edge over companies incorporated elsewhere, where the procedure allowing a company to purchase its own shares out of capital may only be available to private companies.
Shares in a Guernsey company can be held in dematerialised form. This is an advantage over those jurisdictions that can only trade shares on certain stock exchanges through the use of global depository receipts. Shares in a Guernsey company can be settled into, and cleared in, the Crest UK system.
Guernsey has a new electronic companies registry that is underpinned by the latest technology. Once incorporated a company must maintain its registered office and register of members in Guernsey, although an overseas branch register may be maintained in another jurisdiction. A company is not required to have Guernsey-resident directors, but there may well be tax and practical reasons for having them.
Although there are differences between the four key offshore jurisdictions of BVI, Cayman, Guernsey and Jersey, the points that have been raised above in relation to the attractions of Guernsey as a jurisdiction broadly apply in relation to the other three too. In the past few years there has been evidence of further convergence of companies law concepts in the four jurisdictions.
In terms of HKEx listings, BVI saw two companies listed in 2010, having obtained acceptable jurisdiction approval at the end of 2009. Given its close ties with Hong Kong, there is an expectation that more will follow.
Jersey companies have been used for three HKEx listings, the most recent being the Glencore dual listing in London and Hong Kong. Cayman is a well-established jurisdiction for HKEx listing vehicles, MGM China being a recent example.
As for developments in the market, the Channel Islands are focusing increasingly on Asia. Guernsey’s promotional agency for its finance industry has a representative office in Shanghai, while Jersey’s agency has an office in Hong Kong. Law firms including Ogier and Collas Crill, and fund administrators such IAG in Guernsey, are ramping up their presence in the region.
The Shanghai Stock Exchange is currently considering opening up to foreign companies to list and access the mainland market. Given this possible development and the likelihood of more offshore companies being used as listing vehicles for the HKEx, it seems clear that Guernsey and Jersey vehicles will play their part in making the most of Asian opportunities.
Caroline Chan is a partner at Ogier