Glencore uses Jersey company as listing vehicle

The Glencore IPO was the largest in the world so far this year, raising US$10 billion and valuing the company at US$59.2 billion. The issue was four times oversubscribed. It was also the largest IPO to date on the London Stock Exchange, and Glencore became the first company in 25 years to enter the FTSE 100 Index on its first day of trading under the “fast entry rule”. (The FTSE 100 is an index of the largest 100 companies on the exchange.)

Glencore International is incorporated in Jersey and joins a number of other high-profile Jersey companies already listed on the London Stock Exchange (including the global advertising company WPP) and on the Hong Kong stock exchange (including the Russian aluminium producer UC RUSAL).

Whether and where to float

There continues to be strong demand for listings in Hong Kong. Although
indications this year are that Hong Kong is unlikely to match the performance of 2010, in which new equity listings raised almost five times as much money as London listings, there is an underlying trend for new issuers to seek listings in Asia, where their highest growth customer base and longer-term investor demand lie. Prada of Italy, for example, just listed in Hong Kong.

The decision to float a company on a public market is a significant one, involving many personal and professional considerations. Investors need to be persuaded of the qualities of the company and its prospects, so that they will be prepared to invest and ensure the success of the flotation.

There are a number of specific reasons which make a Jersey-incorporated company attractive as a listing vehicle, not all of which are available in other jurisdictions:

• Jersey is a politically stable jurisdiction with a global reputation as a first-class international financial centre and a proven track record in attracting investment from around the world;
• a Jersey holding company may be listed on the world’s major stock exchanges, including London, New York and Hong Kong;
• Jersey offers a highly developed and trusted court system based on English common law principles;
• Jersey companies have the ability to distribute dividends from a wide range of sources and not just distributable reserves. This may be an advantage over companies seeking to maintain a consistent dividend policy, including Hong Kong public companies which need to have qualifying profits and satisfy additional capital maintenance requirements in order to make a distribution;
• Jersey was designated from the outset by the OECD as a “white-listed” jurisdiction meeting agreed international tax standards for information exchange and co-operation; and
• the highest standards of corporate governance can be achieved.

Tax environment

Chinese businesses with an international reach can derive a real advantage from their holding company being incorporated, managed and controlled in a tax-neutral jurisdiction such as Jersey. In Jersey:

• there is no corporation tax, no capital gains tax and no capital transfer tax;
• there is no requirement for a Jersey company to make any withholding or deduction on account of Jersey tax in respect of dividend or interest payments;
• no stamp duty or similar taxes are payable on the issue or transfer of a Jersey company’s shares (although note that another jurisdiction may apply their own stamp duty when trading listed shares – for instance, Hong Kong stamp duty may be payable on a transfer of shares in a Jersey company if the shares are registered on an overseas branch register kept in Hong Kong); and
• a Jersey company may elect not to be resident for tax purposes in Jersey and to be exclusively tax resident elsewhere. The effective rate of taxation then will be dependent on the chosen jurisdiction.

In summary, companies formed as listing vehicles can expect to pay no income tax in Jersey, whether or not they are tax resident in Jersey.

Jersey company law

As well as offering a potentially favourable tax environment, Jersey’s corporate laws also appeal to businesses and investors alike.

Jersey companies law is to a large extent modelled on English law, which was also the basis for the Hong Kong Companies Ordinance. However, Jersey law is generally more flexible than its English and Hong Kong counterparts.

In addition, Jersey offers the following advantages in the context of an IPO:

• the ability to list shares directly on the London Stock Exchange (as opposed to listing depositary receipts, which adds to the cost of a structure) and to trade shares directly through CREST (the UK share settlement system);
• Jersey companies can use the letters “PLC” at the end of their name, just like their UK counterparts;
• Jersey companies are eligible for inclusion in exchange indices such as the FTSE 100 and FTSE 250, which gives the listed group a higher profile and leads to demand for shares from tracker fund managers;
• Hong Kong’s Codes on Takeovers and Mergers and Share Repurchases will apply to companies with a primary listing of equity securities in Hong Kong. The UK City Code on Takeovers and Mergers applies to companies listed on London’s main market and to other Jersey public companies that are centrally managed and controlled in Jersey. This is a key shareholder protection which investors will typically require.

Incorporating a Jersey holding company is straightforward and can be done on a same day basis. Once incorporated, the company must maintain its registered office and register of members in Jersey but is not required to have Jersey-resident directors.

Following the Glencore and RUSAL examples, we expect to see Jersey becoming more widely used for listings on the Hong Kong Stock Exchange in addition to being a popular choice for listings on the London Stock Exchange.

Nathan Powell is a partner at Ogier in Hong Kong