India uses Isle of Man Companies to Access Capital Markets
20th June 2007
This article appeared in May's edition of High Net Worth Journal.
The Financial Times recently reported that India has become the second-largest source of new foreign investment in London. Over the past twelve months, there has also been an unprecedented growth in Indian businesses using Isle of Man companies to access funding available via listing on the Alternative Investment Market of the London Stock Exchange (“AIM”). Of the 30 or so Indian entities currently listed on AIM, over 75% have used the Isle of Man. The fact that Indian businesses have become very attractive investment propositions for institutional investors, due to the extraordinary economic boom currently being experienced in India, is well known. However, their use of the Isle of Man is perhaps less well documented. 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 (6) and Canada (5). The combined market capitalisation of top 100 AIM listed companies incorporated in the Isle of Man amounts to £5,221.89 million. This is more than twice the equivalent figure for the British Virgin Islands (£2,500.89 million) and Bermuda (£1,883.81 million)
Why have international companies and, in particular, Indian businesses chosen the Isle of Man over other offshore jurisdictions?
The benefits of using the Isle of Man
The Isle of Man has become the favourite offshore jurisdiction for Indian businesses wishing to list on AIM for a variety of reasons, including:
- 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;
- the Island’s company law is derived from 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 differs 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 investors;
- most Isle of Man companies are able to take advantage of prospectus exemptions which facilitate the preparation and despatch of the admission document;
- 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;
- professional advisers on the Island (lawyers, accountants and bankers) are knowledgeable about, and experienced in servicing the needs of, Indian businesses; and
- within the same time zone as, and within an hour’s flying time from, London.
The Island has also recently introduced a new corporate vehicle (the “NMV”) which is legally robust, yet flexible and easy to administer. For example, an NMV may 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 subject to simplified offering document requirements. The NMV enhances the Isle of Man’s international business offering and provides Indian businesses with a viable alternative to the more traditional Isle of Man company.
Indian AIM listings
Indian businesses that have accessed AIM using Isle of Man corporate vehicles over the past few months include:
- Trinity Capital plc (real estate)
- KSK Power Ventur plc (power generation)
- Hirco plc (real estate)
- Unitech Corporate Parks plc (real estate)
- Naya Bharat Property Company plc (real estate)
- Evolvence India Holdings plc (private equity portfolio)
Furthermore, the business sectors of India related AIM listings currently in the pipeline that Cains is assisting with include construction, media and property.
Positive feedback
On a recent marketing trip to India, senior lawyers from Cains met with a wide variety of leading local business figures – including lawyers, accountants, bankers and corporates.
The feedback received was positive and, as noted by Mike Edwards, a director of Cains: "Successful Indian businesses are recognising and acting upon the winning proposition of listing in London by way of incorporation in the Isle of Man.“
A leading Indian lawyer Mr Naveen Goal, managing partner of his own firm based in Delhi, commented: “I have worked on in excess of 4 listings of pre-eminent Indian businesses, some of which have utilised Isle of Man companies starting with Trinity Capital. A number of other potential issuers are considering the Isle of Man as their first choice. The Isle of Man provides an excellent gateway to London's capital markets. Besides the benefits of a tax neutral environment, we are confident that the Island meets the highest international fiscal standards and has an excellent track-record with AIM listings.”
It has hoped that the Isle of Man’s success with Indian business continues to grow over the coming years and that the Island cements its position as the offshore jurisdiction of choice for leading and dynamic international companies looking to list on AIM.
For more information, please contact Tristan Head
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