The increasing importance of Cayman

structures for Latin American businesses

Read our article in the Cayman Financial Review Magazine, eversion 

 

The overall trend of globalisation, a desire for diversification and a positive economic cycle are making businesses in Latin American look for opportunities available outside their home markets. In doing so, many have found Cayman structures to be ideal for servicing their global ambitions and demands, greatly facilitating their expansion into the global flows of commerce and capital.

Due to a combination of factors, including a
highly regarded legal system based on the English common law regime, prudent
regulation, a long standing connection with leading businesses in Latin America
and a large network of high quality, expert corporate and financial know-how,
the Cayman Islands have historically been the jurisdiction of choice in Latin
America.

Not only does Cayman offer the proper infrastructure, being a stable
international financial centre with good political climate and dedicated
service providers, it is also OECD white listed and a member of IOSCO. 

Particularly in the
context of Latin America, the Cayman Islands offer a
variety of structures for businesses that wish to gain access to international
markets.

The establishment of funds for Brazilian managers wishing to go abroad
and for investors abroad wishing to invest in Brazil, the incorporation of
corporate subsidiaries for treasury functions, the establishment of trusts for
succession and wealth planning and the use of Cayman companies for a range of
operational and financing structures, from debt and equity financings to joint
ventures to special purpose vehicles are just a few examples of Cayman’s
sophisticated products.  

Investment
funds
 

Leading investment
managers in Latin America have for many years used Cayman structures to offer
international investors access to local asset classes. More recently, as income
in the key regional economies has continued to grow, local investors are also
showing an appetite for global investments, creating a demand for Cayman vehicles
on the outbound side as well as on the inbound side.  

In Brazil in
particular, as the country continues its path of stable and strong economic
growth, the Brazilian investment funds industry has also continued to
experience significant growth, and in 2010 was considered the sixth fastest
growing in the world1.

As capital continues to flow into these investment funds, Brazilian
managers are also looking abroad for opportunities to diversify their
portfolios and offer their investors access to international markets and asset
classes. Given that historically Brazilian fund managers of all sizes have come
to know and trust the Cayman investment vehicle, the Cayman Islands is uniquely
placed to take advantage of this growth in the globalization of the Brazilian
investment market.  

Whereas Brazil may be
the largest funds market in Latin America, the positive economic trends of
greater wealth and a desire and need to diversify
globally are also driving fund managers to other countries in the region, such
as Peru, Chile, Argentina, Mexico and Colombia.

Differences in the regulatory
structures and markets of Latin American economies make it inaccurate to
portray the particular developments in the Brazilian regulatory framework,
which are driving a new generation of Brazilian managers abroad as a model for
all of the other countries in the region, especially given Brazil’s
particularly high interest rates.

However, growth in Latin America as a whole
means that both institutions and private individuals throughout the region are
experiencing a corresponding increase in appetite to grow their wealth and
diversify their investments. A growth in both domestic and foreign investment
means that both local and international investment managers are looking to
create offshore funds dedicated to investment in Brazilian and other Latin
American assets.  

Offshore structures
are ideal for servicing this demand, and as noted in the first part of this
article, the Cayman Islands have tended to be the jurisdiction of choice for
participants in Brazilian (and broader Latin American) investment. In addition
to the strong reputation and high level of expertise available in the
jurisdiction described earlier, Cayman has a number of selling points
especially relevant to investment funds.

These include the fact that Cayman
Islands funds can be set up efficiently, quickly and at a low cost, and that
they are not restricted in terms of the kinds of funds in which they can invest
and their returns are not subject to additional tax.  

Operational
and financial structuring
 

As the worlds’
leading emerging economies continue to integrate into the global financial and
commercial networks, Latin American businesses are increasingly looking at
opportunities to expand their operations and to tap into global sources of
funding and business. Cayman vehicles offer such businesses an excellent
mechanism with which to structure such global expansions.  

With a combination of
a modern and trusted legal framework, sophisticated expert intermediaries and
service providers and low cost, Cayman’s vehicles, whether an exempted company,
an exempted limited partnership or a unit trust,  offer businesses and investors a range of
options in structuring their transactions. Cayman Islands’ tax neutrality
environment allows businesses to routinely establish offshore subsidiaries to
fulfill a wide range of corporate group functions at low cost and great
efficiency.  

Recent changes to
the Cayman Islands’ Companies Law aim to provide increased flexibility and
clarity and also to codify some existing practices under common law.

The
changes to the Companies Law are designed to address client and market-driven
issues that have arisen in practice, enhance the attractiveness of the Cayman
Islands to the international financial community, and at the same time
strengthen the existing environment of legal certainty and commercial focus
that the jurisdiction currently offers.

The changes impact a number of areas of
the law, from segregated portfolio companies to merger provisions.  

One particular
change which may be of interest to Latin American businesses is that from now
on the surviving company in a merger can now be an overseas company. This
brings Cayman in line with other jurisdictions, which previously allowed
cross-border mergers and consolidations of this kind, and should be a simple
and effective mechanism of merging corporate enterprises.  

In Latin America, the steady and
significant growth of the Brazilian economy has attracted a global audience
keen to participate in this evolution. With both the World Cup and the Olympics
in the next five years, the country faces a very significant need for
investment and development, and Cayman structures, as they have elsewhere, can
serve as the bridge between international investment capital and local
investment opportunities.

Elsewhere in Latin America, countries such as Chile,
Peru, Colombia, Mexico and others have also enjoyed long periods of economic
growth.  

 Cayman Island trusts 

With most Latin
American countries experiencing a positive economic cycle, there is also
growing potential for the use of Cayman Islands’ trust structures for
succession and wealth planning purposes for high net worth individuals with
assets outside Latin America. Trusts offer a number of advantages, including
the ability to more effectively protect assets and ensure privacy, as well as
enabling for a more efficient form of estate planning and transmission of
wealth.

Cayman trusts are also widely used in corporate financing transactions,
where the shares of a special purpose vehicle are vested in a trustee who then
exercises voting rights in relation to such financing transaction.  

Conclusion 

All the above
constitute the reasons why the Cayman Islands have established themselves as
the leading jurisdiction of choice for Latin American businesses and why Cayman
is of increasing interest in these countries. In response to this demand a
number of Cayman-based service providers including Harneys have established
dedicated Latin America client service teams. In the case of Harneys, this team
consists of Portuguese and Spanish speaking lawyers who come from top law firms
in Europe, the United States and South America. Harneys’ Latin America team
works out of the firm’s Montevideo, Cayman Islands and London offices and also
includes a permanent representative in Brazil. Through this dedicated team
Harneys aims to offer incomparable high quality legal and corporate services to
clients in Latin America. 

Endnote 

1 ANBIMA

Sebb Platter

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Marco Martins

Marco is head of the Harneys’ Latin America practice and a partner in the firm’s Investment Funds Department and he presently splits his time between the Cayman Islands and Montevideo. Marco’s practice encompasses all aspects of corporate, banking and finance related disciplines, with a particular focus on the establishment and restructuring of investment funds. He speaks fluent Spanish, Portuguese and Italian.   

Marco Martins
Partner – Head of Latin American Practice
Harney Westwood & Riegels
3rd Floor, Queensgate House
113 South Church Street
PO Box 10240
Grand Cayman KY1-1002
Cayman Islands

T: +1 (345) 815 2932
E: marco.martins@harneys.com
W: www.harneys.com 

Maria Buchi

Maria’s role involves working with Harney’s clients, market participants and Brazilian intermediaries to help explore and implement offshore solutions. Her expertise spans the areas of investment funds, trusts and the use of special purpose vehicles for financings. Maria is a qualified Brazilian lawyer who previously served as in-house counsel at Triscorp Investimentos and Opus Gestao de Recursos.

Maria Pia Buchi
Head of Brazil Office
Harneys
PO Box 10240
Grand Cayman
Cayman Islands KY1-1002


T: +55 11 3818 0811
E: maria.buchi@harneys.com
W: www.harneys.com 

Harneys

Harney Westwood & Riegels is a leading international offshore law firm. We provide the world’s top law firms, financial institutions and corporations with legal services relating to British Virgin Islands, Cayman Islands, Cyprus and Anguilla law.

At Harneys we understand the commercial environment in which our clients operate, and the firm has a long-standing reputation for providing fast, accurate and commercially astute advice. Our core philosophy is a commitment to absolute quality in the work we deliver, and unparalleled responsiveness and client service. As a result, we are consistently ranked as one of the world's top offshore legal practices by independent ranking directories.

Harneys’ associated corporate and private wealth services business, Harneys Services, delivers a full complement of company, trust, and fund formation and administration services in the British Virgin Islands and Cayman Islands. We hold a Class 1 Trust License and offer a broad range of fund, trusts, and fiduciary services. 
3rd Floor, Queensgate House
113 South Church Street
PO Box 10240
Grand Cayman
KY1-1002
Cayman Islands
tel: +1 345 949 8599
fax: +1 345 949 4451
email: cayman@harneys.com