The BVI Business Company: A Tried and Tested Vehicle for a London IPO
This article was featured in the October 2014 edition of the BVI Finance newsletter published by the British Virgin Islands International Finance Centre. Please click here to view the BVI IFC's website.
For decades, British Virgin Islands ("BVI") companies have been attractive as publicly listed holding vehicles. BVI companies have listed their securities on major stock exchanges worldwide, including the main market of the London Stock Exchange, the Alternative Investment Market ("AIM") of the London Stock Exchange, the New York Stock Exchange, NASDAQ, the International Securities Exchange, the Toronto Stock Exchange, and the Hong Kong Stock Exchange.
As well as the natural resources and real estate sectors with which the BVI is perhaps most often associated, these companies have operated in a diverse range of sectors including energy, textiles, fast food, technology, high-tech security, consumer goods and luxury retail.
London remains an extremely attractive venue for companies undergoing an initial public offering ("IPO"), and the London Stock Exchange has proved a popular destination for BVI companies seeking a listing. Over 50 BVI companies have been admitted onto the main market and AIM since 2000, including a dozen since January 2013.
Advantages of listing through a BVI vehicle include the fact that the BVI does not impose a double layer of regulation on a listed BVI company. For example, there is no BVI takeover code or public filing requirement applicable to listed companies. The UK City Code on Takeovers and Mergers (known as the Takeover Code) does not apply to BVI companies listed in London, and this results in the ability for the constitution of a BVI listed company to be tailored easily to reflect the exact corporate governance and shareholder protection provisions appropriate to the company, the target investor base and the requirements of the relevant stock exchange.
The fact that there is no additional layer of tax and regulation ensures that the incorporation and ongoing costs of using a BVI company are low, whilst high standards are maintained as required by the International Organization of Securities Commissions (IOSCO), of which the BVI is a member. BVI law has codified the traditional common law basis for directors' duties and members' remedies. BVI company law also provides statutory dissent and appraisal rights for members who object to certain corporate actions, such as in the case of a merger, compulsory acquisition, or disposition of major assets. BVI law has departed from the concept of share capital in favour of a solvency based regime, which allows greater flexibility when a company proposes to declare distributions, carry out reverse share splits, change the par value of its shares and/or effect redemptions.
Shares in international companies cannot be traded directly through CREST, the UK's settlement system (which is responsible for recording the transfer of title of securities with no paper certificates and, perhaps most importantly, for distributing dividends). Accordingly there is a tried and tested system through which depositary interests, which represent shares in the underlying company, are issued by a depositary such as Computershare against the deposit of those shares. The depositary interests are English law securities and are traded through CREST, enabling investors in BVI and other international companies to access the same electronic trading system as for UK companies. BVI counsel will provide the necessary legal opinions, for example to Euroclear UK & Ireland Limited as the operator of the CREST system.
One recent high profile listing of a BVI company was the IPO of Russian hypermarket chain Lenta on the main market of the London Stock Exchange and the Moscow Stock Exchange. Lenta is Russia's second largest hypermarket chain, and its IPO raised just under US$1 billion. The European Bank for Reconstruction and Development held a 21.5% stake prior to the offering, and sold a 4.8% stake. TPG Capital and VTB Capital Private Equity also hold stakes.
Another BVI company to list recently was Falanx Group Limited, the holding company of the Falanx Group, which offers general security consultancy, physical security technology, business intelligence, political and security risk analysis and crisis management to large corporates and some governments operating in sensitive regions. Falanx Group Limited is incorporated in the BVI, operates internationally and was founded to respond to a heightened need for security consultancy and asset protection by large corporates and some governments operating in sensitive regions such as those affected by the Arab Spring and increased risk from civil unrest, terrorism and ethnic tensions.
The BVI is a familiar jurisdiction for players in the mining and energy sectors, and other BVI companies listing on the London Stock Exchange recently included mining company Golden Saint Resources Ltd, which was admitted to listing following its acquisition of 75% of the issued share capital of Golden Saint Resources (Africa) Limited, ("GSR Africa"), from Golden Saint Australia Limited. GSR Africa is an early stage diamond and gold exploration company which holds gold and diamonds exploration licences in Sierra Leone. US focused oil and gas company Northcote Energy Ltd also listed on the London Stock Exchange in 2013 through a BVI listing vehicle. Its primary focus is on Mississippi Lime formation in Oklahoma, where new technologies and techniques including horizontal drilling have re-opened the oil play.
Special purpose acquisition companies ("SPACs") have in the past decade found the flexibility of BVI corporate law advantageous and this has allowed the vehicle to evolve. BVI company Justice Holdings Limited ("Justice") (which was then listed on the London Stock Exchange), closed its business combination agreement with Burger King Worldwide Holdings, Inc., the world's second largest fast food hamburger restaurant chain, under the terms of which 3G Capital, a global investment firm and Burger King Worldwide's principal shareholder, received approximately US$1.4 billion in cash and continued as the majority shareholder. The newly formed combined company listed and commenced trading on the NYSE. Following closing, the former Justice shareholders and Justice founders owned approximately 29% of the combined publicly traded company. Last year Bob Diamond's SPAC Atlas Mara Co Invest Ltd raised gross proceeds of US$325 million on the main market, including the founders' investment of US$20 million.
The next 12 months promises to see continued use of BVI companies as listing vehicles in London and on other major exchanges.