The strengthening UK economy has galvanised investor resolve and two UK regulatory changes – the removal of stamp duty on AIM shares and the ability to hold those shares in UK ISAs – have boosted demand and liquidity for AIM stocks. Ten companies have listed on the AIM market in the first quarter of 2014 and the market is expected to exceed the 35 IPOs achieved in 2013. Secondary issues have also seen a sharp rise in Q4 2013 (24) and Q1 2014 (11).
Much of the demand AIM for IPOs and for offshore vehicles continues to come from Asia and particularly China. Against a backdrop of economic reform, domestic demand in China is starting to gather momentum. Chinese companies, raising finance for expansion, are increasingly looking for a tax neutral jurisdiction in which to establish their listing vehicles – and the Crown Dependencies expertly fit the bill.
A Tale of Transition?
Although China recently passed the United States as the world’s largest trader of goods (USD4.16trillion in 2013), many market commentators are taking the view that China’s decade long investment driven economic boom is cooling. Clearly there is a political will to implement economic reforms that will transform the country and nurture the much sought after domestic demand. There is a suggestion that the policy shift has delivered (in NBS chief Ma Jiantang’s words) “a good momentum of stable and moderate growth in 2013”. Domestic demand in China is starting to gather momentum. Retail sales, a key indicator of consumer spending, delivered growth of 13.1% in 2013. Apple and Jaguar Land Rover’s recent success in wooing the Chinese retail market has been grabbing the headlines in western economies but domestic Chinese companies are expanding to fill domestic demand and are using the UK equity capital markets to provide the finance.
UK Equity Capital Markets
The Crown Dependencies’ unique constitutional positions and well established relationships with the City of London have helped generate substantial interest from foreign groups looking for a tax neutral jurisdiction in which to establish a listing vehicle. Of the 36 foreign groups that listed on the AIM market of the London Stock Exchange last year, seven were incorporated in Jersey, five in Guernsey and two in the Isle of Man. In the first quarter of 2014, 12 foreign groups listed on AIM, almost half from the Crown Dependencies (three from Jersey and one each from Guernsey and the Isle of Man). Demand from Chinese originators has been particularly strong with seven Chinese companies, often headquartered in Hong Kong, listed on AIM in the last 12 months.
With a strong presence in both Hong Kong and Shanghai, and good links between the Jersey, Guernsey and Isle of Man teams and key market intermediaries, Appleby has advised three recently listed Chinese groups, Camkids Group plc, JQW plc and most recently Galasys plc (on 12 May 2104). Further IPOs are in the pipeline.
What has been striking is the level of international market knowledge and sophistication that domestic Chinese businesses and their key individuals now exhibit. The Chinese business community is becoming increasingly aware of listing requirements and the potential benefits of using a Crown Dependency company as a group listing vehicle, and this is reflected in the strong demand we are seeing from Chinese originators across all sectors.
Located in the Euro time zone, bridging US and Asian markets, the Crown Dependencies are OECD white listed and have been recommended in an International Monetary Fund report dealing with multilateral initiatives against money laundering, terrorist financing and tax evasion.
The Crown Dependencies are all highly regulated tax neutral jurisdictions. There is no corporation tax, capital gains tax or capital transfer tax. There is no requirement for a company to make any withholding
or deduction on account of tax in respect of dividend or interest payments (NB: Guernsey does require companies to make withholdings in respect of some locally earned interest and distributions).
Using a Crown Dependency company as the vehicle for an IPO may enable foreign trading groups to access London’s capital markets without becoming liable to UK tax (UK tax advice should be taken and followed in every case). There are no foreign exchange controls to limit a Crown Dependency company’s ability to hold foreign funds or securities and the mind and management of the company can be based in Jersey, Guernsey or Isle of Man. The introduction of cross border merger regulations allows foreign companies to merge with a Crown Dependency company providing potentially significant tax advantages.
A Crown Dependency public holding company is comparable to a UK PLC. In addition, Incorporated and Protected Cell Companies are also available in the Crown Dependancies.
Shares in Crown Dependency companies can be traded in uncertificated form and are eligible for admission into the CREST trading system. Three well known CREST enabled share registrars are regulated to conduct business in Jersey and Guernsey and two exist in the Isle of Man. Crown Dependency companies have unlimited capacity, share capital can be denominated in any currency and issued in any number of classes and no par value shares are also available. Treasury shares are permitted and allow effective management of share capital.
Jersey and Guernsey now has the provisions of the UK takeover code enshrined in its legislation. In the Isle of Man, the code has applied to certain IOM publicity traded companies for many years and changes made to code, which come into effect on 30 September 2013, extended the code to many more Isle of Man companies.
The above benefits provide a compelling case for using the Crown Dependencies and as awareness of this continues to grow in China, so too do the opportunities for Jersey, Guernsey and Isle of Man businesses.