Key factors to consider in choosing your offshore listing vehicle in Hong Kong

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Companies in the Cayman Islands and Bermuda comprise more than 70% of those listed on the Hong Kong Stock Exchange (HKEx), and the offshore world plays a significant role in corporate finance. Since December 2009, companies incorporated in the BVI have also been allowed to list on the HKEx, and there are now six BVI companies listed, making up 0.3% of the exchange.

 Judy Lee
Judy Lee

These offshore jurisdictions are welcomed by regulators and are acceptable to underwriters, rating agencies and institutional and private investors. They are well regulated and have strong service infrastructures. Each has a flexible and responsive legislative, business and regulatory environment, providing for innovative legal solutions on capital markets transactions.

Cayman, Bermuda and, to a lesser but growing extent, BVI are the most popular vehicles for a Hong Kong listing. Certain features of Cayman, Bermuda and BVI companies may impact on pre-IPO reorganization and the listing process, as well as post-IPO corporate finance transactions like securities offerings or capital restructurings. The following key factors will therefore influence the choice of domicile of an offshore listing vehicle in a HKEx offering.

BVI business companies

BVI companies have been used extensively in private equity transactions and a HKEx listing is now a viable exit option for private equity investors. The traditional pre-IPO restructuring involved the incorporation of a Cayman/Bermuda listing vehicle (Cayman/Bermuda Listco) and the reorganization of the group structure, resulting in the Cayman/Bermuda Listco becoming the group holding company and listing vehicle. If a BVI holding company is in place, this process can be simplified, because the holding company can act directly as the listing vehicle with no need for pre-IPO restructuring. This significantly reduces the regulatory, bank or contractual approvals otherwise required.

A BVI business company is exempt from all provisions of the BVI Income Tax Act. Capital gains realized with respect to shares, debt obligations or any other securities of the company by non-residents of the BVI are also exempt.

There is no longer the concept of authorized share capital in BVI, in line with other Commonwealth jurisdictions like Australia, and no minimum share capital is prescribed. That means a company’s ability to make distributions is no longer dependent on its level of share capital or share premium, and the board can authorize a distribution if satisfied the company can pass the statutory solvency test prescribed in the BVI Business Companies Act.

There is no prospectus filing requirement in the BVI for BVI companies making public offers. Directors must disclose their interests to the board when they become aware of an interest in a transaction. Disposals of assets worth more than 50% of the value of company must be approved by directors and shareholders, and there is no statutory prohibition on the granting of financial assistance to a person who acquires shares in a BVI company.

At the time of writing, the annual government fee for BVI Business Companies authorized to issue up to 50,000 shares is US$350, and US$1,100 for those authorized to issue more.

Cayman Islands exempted companies

There is no prospectus filing requirement in the Cayman Islands for Cayman companies making public offers outside Cayman, unless the company constitutes a mutual fund. There also are no Cayman governmental approval requirements for issuance or transfer of securities in Cayman companies.

There is no taxation on profits, income or dividends, nor is there any capital gains tax, corporation tax or taxes in the form of withholding, estate duty or inheritance tax under Cayman Islands law. Dividends may be paid out of the share premium account of a company, but may not be paid out of a company’s capital, and there are no statutory provisions regulating directors’ interests or the disposal of assets.

The granting of financial assistance is not statutorily prohibited, but all capital reductions by Cayman companies need to be approved by the Cayman courts. The annual government fees for Cayman companies range from US$854 to US$3,132, with the highest applying to those with an authorized share capital over US$2 million.

Bermuda exempted companies

Before the amendment of the Companies Act of Bermuda in 2013, HKEx-listed Bermuda companies were required to file a copy of their prospectus with the Bermuda Registrar of Companies when making public offers. Since the amendments, they no longer need to do such filings in Bermuda, provided that the HKEx has accepted the relevant prospectus, or does not require one.

There are no taxes on profits, income or dividends, nor is there any capital gains tax, estate duty or death duty in Bermuda. A distinct feature of Bermuda companies is that all issuances and transfers of securities in a Bermuda company to non-Bermuda residents require prior approval of the Bermuda Monetary Authority (BMA), with only a few exceptions. So long as any securities of the company are listed on an appointed Stock Exchange (including the HKSE), the BMA has granted general permission for the issue and transfer of securities among non-Bermuda residents.

If a company issues shares at a premium, whether for cash or otherwise, a sum equal to the value of the premium must be transferred to a share premium account. Share premium may be applied by a company in paying up unissued shares of the company to be issued to shareholders as fully-paid bonus shares.

Directors must disclose their interest in any contract, or proposed contract, with the company or its subsidiaries, and in any person a party to such a contract.

There are no statutory provisions regulating the disposal of assets, and statutory rules on financial assistance were repealed in 2011. Bermuda companies are more flexible than Cayman companies in that they can effect a capital reduction without court approval, usually requiring only a special resolution of the shareholders.

The annual fees for Bermuda exempted companies range from US$1,955 to US$31,120, with the highest level applying to companies with capital over US$500 million.

Judy Lee is a corporate partner and the group head, science & technology, in the Hong Kong office of Appleby. Her practice covers Bermuda, Cayman and BVI corporate laws. She can be contacted on +852 2905 5737 or by email at jlee@applebyglobal.com.

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