Take AIM....
Offshore-led listings have seen a slowdown, but the game is not over yet, says Daniel Mackelden.
Offshore related IPO work in 2008 has been significantly affected by the continuing turbulence in the world’s capital markets.
Although numerous secondary issues have taken place and a few high profile companies have migrated to the Official List this year, for example, Hardy Oil & Gas, very few new companies have debuted on the UK markets.
This slowdown has undoubtedly been noted in the wider offshore world as a significant percentage of international companies which have routed to, for example, AIM have done so by incorporation in the offshore centres. Indeed of 300+ international companies on AIM over two thirds of these are based in offshore jurisdictions. The bulk of these companies are located in the Isle of Man and the Channel Islands with the remainder coming from the Caribbean centres such as Cayman, Bermuda and the BVI.
The situation is not however without hope as many companies from the world’s key emerging markets are still actively engaged in pursing listings especially where they have strong underlying existing businesses. A healthy pipeline exists and it is very much a case of when rather than if these companies will proceed.
Ongoing and new instructions for offshore advisors are primarily coming from the world’s emerging markets with India leading the charge. Twenty-four Indian companies are listed on AIM - all apart from two have holding companies in offshore jurisdictions. There is still a healthy mix of Indian companies looking to the UK and AIM notably in the media, power and infrastructure sectors. It should be noted however that Singapore is also being discussed as a possible listing venue although one would expect given the size, profile and relative liquidity of AIM that it will remain the market of choice especially for the larger, better known players. Also even though some companies have shelved listing plans in the short term there are still private placements being effected in anticipation of an improving market later in the year.
Chinese work - although widely talked about - remains a slight enigma as the current stance of the Chinese government has effectively curtailed London listings at the current time - witness the recent senior UK delegations aiming to progress matters. This temporary embargo hits both the on and offshore world alike. Continued interest also exists in the CIS states primarily in the oil and gas sector - one of the few successful Main Market IPOs this year was Zhaikmunai LP, a holding entity of an independent oil and gas enterprise operating in North-Western Kazakhstan. The Isle of Man limited partnership raised $100 million through the first ever listing of GDRs representing partnership interests.
Where ever these companies are coming and irrespective of the offshore centre used then similar legal issues arise – effectively superimposing UK plc standards on the listed vehicle normally through the Memorandum and Articles. Although corporate governance and accounting questions have been levelled at international companies – especially on the larger higher profile deals they have readily adopted City Code type provisions and Combined Code principles as well building in greater disclosure requirements for directors, shareholders and accounting matters in order to reassure and attract suitable institutional investors.
The size of international companies coming to AIM has also significantly increased over the last three years. Towards the back end of 2007 there were numerous listings of companies with market caps of in excess of £200 million. Although historically AIM was viewed as the appropriate market for small and mid-cap clients - some of the entrants last year were borderline on whether they should have been on AIM or the Main Market. Some may not have had a choice - in that they did not have a sufficient track record. Others may have seen the AIM market as a better place to start off and with their internal processes and procedures developed and improved on AIM then they would seek to migrate to the Official List in due course.
As and when the market does pick up then one hopes the use of offshore vehicles will continue. The reason why offshore centres are used is of course primarily driven by tax combined often with roadblocks to domestic listings, for example, intense competition to list such as in Shanghai last year for PRC companies or regulatory/political reasons why the underlying company cannot be listed overseas and hence the use of an offshore topco. Corporate entities based in offshore jurisdictions will generally be subject to low or no tax. Similarly stamp duty and withholding tax do not generally exist. The ability to tap capital markets but to keep the holding company and its profits in a tax efficient jurisdiction is a powerful business driver. Also these holding companies can be used to embark on tax efficient M&A activity elsewhere around the globe.
Daniel Mackelden is a Departmental Director and head of Cains’ London office. |
