Whilst the Exchange provides the ability to list both specialist debt or equity securities such as, amongst others, high yield bonds or REITs (Please do click on the applicable link for Appleby’s respective overview for listing each of high yield bonds or REITs on TISE ), the majority of those securities listed on the Exchange are “Quoted Eurobonds”, being quoted funding bonds (commonly referred to as loan notes) or payment in kind notes (collectively referred to herein as a Quoted Eurobond or Quoted Eurobonds where applicable) issued most commonly by UK portfolio companies of leveraged buyout and private equity funds.
A Quoted Eurobond is an interest-bearing security issued by a company, which is subsequently listed on a “recognised stock exchange”. TISE is a stock exchange recognised by Her Majesty’s Revenue and Customs (HMRC) pursuant to section 1005 of the Income Tax Act (2007). If a Quoted Eurobond is listed by an issuer on TISE, interest payments on such issue will be exempt from UK withholding tax (the Quoted Eurobond Exemption).
Payment in Kind Notes
The changes introduced in 2005 by the Finance (No. 2) Act 2005 (which came into effect for all loan relationships created from 4 March 2005) provide for limited exceptions which allow deductibility of interest payments (or the discount on a deep discount bond) on an accruals basis if the borrower is a small or medium sized enterprise and the creditor is either UK resident or not resident in certain offshore centres, or where the loan is from a limited partnership which qualifies as a collective investment scheme and the borrower is a small or medium sized enterprise, all of the partners are either UK resident or not resident in certain offshore centres and the partnership provides written confirmation of that fact. Otherwise, the UK portfolio companies of leveraged buyout and private equity funds will only be entitled to tax deductibility of interest payments when they are actually paid (or in respect of deep discount bonds when they are redeemed).
One solution, which allows a tax deductibility of interest as it accrues, is the issue by the UK portfolio company of payment in kind notes (PIK Notes). Where such PIK Notes are issued, interest payment obligations are met by the issue of the PIK Notes and no cash is required to be paid. The issue of the further PIK Notes is treated as payment of interest equal to the value of the PIK Notes issued for tax deduction purposes. Where noteholders of PIK Notes or limited partners (as the private equity fund is likely to be tax transparent) are not UK resident, they will be subject to UK withholding tax on the value of the notes issued. The Quoted Eurobond Exemption will also be available to issuers and noteholders of PIK Notes if the PIK Notes are listed on TISE.
It should be noted that certain UK resident limited partners may be liable to tax on the receipt of PIK Notes issued to them and US limited partners may also face tax liabilities. However, it may be possible to structure the funding bonds so that those bond holders who would otherwise be liable to withholding tax may elect to receive PIK Notes, while those bond holders who would incur an unfunded tax liability on PIK Notes can elect to receive cash interest. Alternatively, the issuer may issue PIK Notes to all bond holders but those who would be liable to an immediate tax charge could redeem such amount of PIK Notes as is necessary to meet the liability to tax.
When compared to the withholding tax liabilities which would otherwise be incurred on the payment of interest for issue of non-listed PIK Notes, the issuer will obtain substantial overall savings and will generally recover the cost of listing within the first year.
European Union’s Market Abuse Regulation
Additionally, since the introduction of the European Union’s Market Abuse Regulation (Regulation 596/2014) (MAR) which repealed and replaced the Market Abuse Directive (2003/6/EC), a number of issuers have sought to not only list new loan notes on the Exchange, but also move their current listings to TISE from comparable exchanges from within the European Union (EU), most notably the Luxembourg Stock Exchange and the Irish Stock Exchange.
As the Channel Islands are based outside of the EU, MAR does not apply to securities listed on TISE. Whilst the Exchange may not be subject to the obligations imposed by MAR, TISE still maintains robust market abuse rules which are applied proportionately to the type of securities listed and TISE remains an internationally recognised exchange by, amongst others, Her Majesty’s Revenue and Customs, the German securities regulator, BaFin, and the Australian Securities Exchange. Combined with the Exchange’s pragmatic and commercial approach to listings, the Exchange often appeals to issuers from the United Kingdom, Europe and the United States.
Advantages of Listing Quoted Eurobond on TISE
The key advantages to listing Quoted Eurobonds may be summarised as follows:
- TISE is a “recognised stock exchange”, interest paid on qualifying Quoted Eurobonds is not subject to withholding for UK tax purposes if the Quoted Eurobonds are listed on TISE;
- because TISE is not part of the EU, MAR will not apply to issuers issuing Quoted Eurobonds on TISE;
- in addition to the above, the EU Prospectus Directive (2003/71/EC) will not apply to issuers issuing Quoted Eurobonds on TISE;
- TISE is within the same time zone as the UK, and the Channel Islands are an English speaking jurisdiction;
- personalised approach with prompt turnaround time and consistency of response;
- TISE listing fees are very competitive (current fees may be found on TISE website). In addition, cost savings may arise as, under the Exchange’s listing rules (the Listing Rules), existing documentation may be utilised to form part of the required listing application documentation;
- TISE is responsive and approachable, providing comments on the initial application documents within three business days and any subsequent responses within two business days of relevant documentation being submitted;
- international standards of issuer regulations;
- enhanced marketability and added value service; and
- a pragmatic and flexible approach to disclosure requirements.
Process of Listing Quoted Eurobond on TISE
The first stage in the making of any application for admission to the official list maintained by TISE is the appointment of a listing agent. The applicant must have a listing agent at all times while making the application. Once listed, the listing agent facilitates compliance with the ongoing obligations outlined in chapter 7 of the Listing Rules, a copy of which can be found here. Appleby Securities (Channel Islands) Limited is a full listing member able to act as listing agent in respect of the listing of debt securities, including Quoted Eurobonds.
The listing procedure consists of four steps, each can be summarised below:
1. Step 1: Satisfying Initial TISE Listing Conditions – before the draft application can be submitted to the Exchange, the listing agent will assist the issuer with the collation of certain details and documentation from the issuer in respect of the Quoted Eurobonds being listed and details of the structure of the issuing entity. The listing agent will then prepare the draft application documentation for the issuer’s review and consideration;
2. Step 2: Submission of Draft Application to TISE – the draft application for listing of Quoted Eurobonds can then be submitted to the Exchange by the issuer’s listing agent, upon which (and subject to the settlement of the Exchange’s listing application fee) the Exchange will consider and the application and revert within 3 business days with its initial comments letter.
The applicant must submit certain documents to TISE as required by the Listing Rules. The documentation consists of a listing document, usually in the form of a “wrapper” document (wrapped around the instrument that creates the Quoted Eurobonds being listed) prepared by the listing agent to include all details and information required to satisfy TISE’s application Listing Rules, together with supporting documentation such as accounts (when necessary) and various standard application forms which TISE provides within its Listing Rules.
The disclosure requirements for the documentation that form the draft application to the Exchange are set out in chapter 6 of the Listing Rules. The listing agent of the issuer will advise as to compliance with the Exchange’s requirements prior to the submission of the application to the Exchange;
3. Step 3: Approval – following correspondence between the listing agent and the Exchange, once the Exchange are satisfied with the form of the application, the issuer and their listing agent submit the final application to TISE who will submit a report, including their recommendations to TISE’s Listing and Membership Committee to be considered at a meeting of the Listing and Membership Committee; and
4. Step 4: Listing – if the Listing and Membership Committee approves the application, the listing documentation is then filed and the Quoted Eurobonds are admitted to the Official List. Upon completion of the listing, the issuer will be required to ensure compliance with the ongoing obligations outlined in chapter 7 of the Listing Rules.
TISE also provides a facility for the secondary listing of a company’s securities which are already listed on one or more other recognised stock exchanges.
The listing process is generally the same for a secondary listing as for a primary listing. TISE will, however, permit an issuer to use the previous listing document approved by the issuer’s primary exchange (within the 12 months prior to the secondary listing application) to obtain a listing on TISE and certain information necessary for a primary listing may not be required to be submitted to TISE. TISE may, however, ask that additional documentation be prepared by such an issuer in the form of a wrapper document or supplementary listing document to be annexed to the previously issued listing document approved by the issuer’s exchange of primary listing, if the documents supplied prove to be inadequate.
Appleby Securities (Channel Islands) Limited
Appleby Securities (Channel Islands) Limited, is a full listing member of TISE, and can act as a listing agent or sponsor for all listing purposes. Appleby Securities (Channel Islands) Limited is able to provide high quality, cost-effective professional services in all aspects of structuring and documenting debt and equity issues, from initial inception to public offerings and listings.
We provide a professional and integrated service, coordinating the listing process and supporting the issuer through its application. We also act as our client’s ongoing agent and assist them in meeting the issuer’s continuing obligations as a listed issuer on the exchange.
For more information on our expertise related to our listings services please do not hesitate to get in touch with Andrew Weaver or your regular Appleby contact.