The first half of 2013 has seen private equity sponsors and corporate borrowers continue to look to the corporate bond and debt capital markets for M&A and joint venture project activity as an alternate source of funding to bank lending.
Appetite for this kind of borrowing, together with strong investor demand, has resulted in the availability of attractive financing options. This has significantly improved the deal-making environment for cross-border M&A activity in 2013, and this is expected to continue well into 2014.
Offshore bond issuing vehicles have been used by multinational corporations and private equity houses for a number of years as a means of obtaining access to global debt capital markets. The most common types of debt funding instruments issued by Jersey incorporated issuers to raise acquisition financing are high-yield bonds and convertible bonds.
Jersey 'cash box' company structures have also continued to prove popular in an M&A context. This typically involves private limited companies raising money through a placing of shares, a rights issue or the issuance of a convertible bond.(1)
Jersey-incorporated issuers of high-yield and convertible bonds require a standard form Jersey regulatory approval to the issue of shares, which is obtained on incorporation.
Regulatory approval in Jersey is required for the circulation of the offer for, and the issue of, the bonds. The Jersey bond issuer may also need consent to raise money in Jersey. However, such regulatory consent can usually be obtained from the Jersey authorities in a very short timeframe and accordingly will not significantly delay any M&A transaction timetable.
A Jersey-incorporated issuer may be considered preferential for M&A-driven debt capital markets transactions for a number of reasons:
- Investor familiarity - large multinationals that utilise special purpose issuers have a myriad of market and regulatory requirements to satisfy. Jersey issuers provide a level of both flexibility and familiarity to corporate bond market investors which sponsor targets in pan-US or European offerings.
- Simplified listing and approval process - listing the debt of a Jersey issuer on a non-EU market (eg, the Channel Islands Stock Exchange) means that UK Listing Authority approval will not be required and any offering document need not comply with the EU Listing or Prospectus Directives.
- Tax neutrality for Jersey issuer - there is a 0% rate of Jersey income tax, no capital gains tax or withholding tax and no stamp duty on the issue or transfer of shares in Jersey.
- Residence - although incorporated in Jersey, a Jersey issuer can be resident in the United Kingdom, provided that it is managed and controlled from the United Kingdom. There is no need to appoint Jersey-resident directors.
- Legal framework - Jersey has an established legal framework based on established English law principles, but with a greater degree of flexibility.
- Speed of incorporation - a Jersey issuer can usually be established within 24 hours.
- Speed of the regulatory authorities in issuing the relevant consents - even the most demanding timetables can usually be met.
- Quality of financial services providers - Jersey has had a thriving financial services sector for over 30 years, alongside a strong body of law firms and administrative service providers.
- Offshore centre - Jersey is a member of the Organisation for Economic Cooperation and Development and on its White List of offshore finance centres.
There is an established track record of corporations in the United States, Europe and Asia successfully using offshore issuers for high-yield or convertible bonds to meet M&A financing requirements.
As a less expensive form of financing, M&A and other event-driven corporate debt issuance in Jersey offers real opportunities for strategic M&A in the current market.
(1) For more information on Jersey cash box structures please see www.ogier.com/Publications/Library/Pages/Cash_box_transactions_the_use_of_Jersey_companies.aspx.
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