To list or not to list…Taking private equity public:

New options on the Cayman Islands Stock Exchange

Read the article in the Cayman Financial Review Magazine 

In a market traditionally focused on funds and banks, the Cayman Islands Stock Exchange (CSX) has recently expanded its services to support new issues and start-ups. The principal reason for seeking a listing is to raise new funds for establishing or growing a business.  

For all the glamour associated with going public, the fact remains that the decision to do so should be based on hard business realities. In this paper we explore the pros and cons of listing as well as some of the new features of the CSX. 

As owner or shareholder of a private corporation, one must weigh the advantages and disadvantages of going public in relation to the plans and goals you have set for your company. Discussions with lawyers, auditors and other professional advisors will also help one’s decision making.

Going public can be an involved process that represents a significant milestone for any company. As an entrepreneur, you might be thinking of taking your company public. If so, you will undoubtedly have many questions and may consider the following points, among others:

Advantages of a public listing include

  • Increased capital for expansion or undertaking new projects
  • Improved transparency for shareholders
  • Improved financial position
  • Greater cash flow flexibility than debt financing
  • Reduced personal funding and guarantees
  • Public company status
  • Increased marketability and transferability of shares
  • Attaining economies of scale
  • Business succession

Disadvantages include

  • Increased pressure to improve growth pattern and maintain profitability
  • Disclosure of information and additional compliance requirements
  • Dilution of control
  • Listing tends to have higher set-up costs than raising debt

Companies that are ready to go public generally share a certain number of characteristics. While not always the case, most of these companies have progressed beyond the start-up phase to a certain scale, have become profitable and have prospects for significant growth.

The public market generally readily accepts companies that have achieved a track record of revenue growth, capable leadership, an experienced and credible management team and operations in a strong industry with potential for high performance.

An effective listing team will have the right mix of professionals involved in the launch, including listing agents, auditors, reporting accountants, lawyers and public relations firms. These professionals play an important role throughout the initial public offering process of a company as they provide valuable advice and services to ensure the company shares are successfully listed.

Why Cayman?

The Cayman Islands Stock Exchange has developed a strong track record of supporting the global fund market. The Cayman Islands is recognised worldwide as a leading centre for offshore funds.

It is financially and politically stable, and home to a large portion of the world’s hedge and private equity funds – the fund industry has proved a natural launch-pad for the exchange.

Initially the CSX developed a set of listing rules specifically tailored to meet the needs of investment funds of all types, and following its launch in 1997, the CSX grew rapidly to become one of the world’s premier listing venues for funds.

The CSX model is to combine a clear and effectively regulated listing environment with flexibility of approach, and efficient and timely processing of listing applications. In addition, the mature financial markets in the Cayman Islands are supported by service providers who have established a reputation for expertise in, amongst other things, fund administration, accounting and legal services.

By domiciling and listing in the same jurisdiction, a fund can eliminate the need for duplicate service providers in other jurisdictions – a ‘one stop shop’ results in cost and time efficiencies.

Credibility is fundamental to the success of an exchange. To this end in 1999 the CSX became the first offshore stock exchange to be registered with the London Stock Exchange. In 2004 it was granted status as a “recognised stock exchange” under the UK Income and Corporations Taxes Act 1988.

This allows a personal pension scheme in the UK to hold securities listed on the CSX – an attractive prospect for an entity looking to access UK capital. The CSX is also an affiliate member of the International Organization of Securities Commissions (IOSCO) and is the only offshore exchange that is an affiliate member of the Intermarket Surveillance Group, a surveillance focused group of over 30 exchanges from around the world, including all US equity and derivatives exchanges.

The general benefits of listing a fund are that a listing increases a fund’s potential investor base and increases the visibility, marketability and prestige of the fund. Some of the other specific benefits that the CSX itself records in respect of its listing environment include:

  • Dedicated pages on the Bloomberg Financial Markets Information Service
  • Competitive listing fees compared with other exchanges
  • No exchange controls

The CSX is not bound by any European Union Listing Directives and as a result can be considerably more flexible in its approach.

Building on this foundation, the CSX has now positioned itself to serve a broader clientele. In November 2011 it finalised a new set of listing rules, specifically designed to support listings by mineral and mineral exploration companies, specialist companies for offering securities to “qualified investors”, and start-up companies, as first used by Cainvest International Bank Ltd when it listed in July 2012.

Additionally, the CSX recently announced an agreement to use Deutsche Börse’s electronic trading system, Xetra, from spring 2013. Xetra is currently used at the Vienna Stock Exchange, the Irish Stock Exchange, the Frankfurt Stock Exchange, the Ljubljana Stock Exchange (stock exchange of Slovenia) and the Malta Stock Exchange, to mention a few.

Use of Xetra is intended to provide increased access to, and transferability of locally listed equities. In conjunction with the new listing rules, this structure lays the foundation for further listings on the CSX. Accordingly the Cayman Islands now offer a platform to host a growing range of publicly capitalised ventures that can pool capital from both local and offshore (non-Cayman) sources.

It also positions the CSX to consider expansion into the trading and transfer of other listed instruments, the most recent being catastrophe bonds and insurance-linked securities, which has historically been an over-the-counter transaction with no central pricing repository to aid transparency.

In conclusion, listing can be a good way to access new capital and to regulate relationships between shareholders by providing visibility of company share structure and financial information. It also improves the transferability and liquidity of trading in a company’s shares.

On the other hand, listing dilutes control, increases required disclosure of corporate information and increases certain associated costs.

The decision to list is not always an easy one, and all relevant factors should be considered holistically along with advice from experts. With the expanded services offered by the CSX, should the decision be to list, there are now more reasons to consider a Cayman Islands listing.

This publication contains general information only, and not intended by means of this publication, rendering professional advice or services.  

 

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Timothy Derksen

Tim Derksen is a Director with Deloitte Cayman Islands in the Financial Advisory practice.   He leads the Corporate Finance and Valuations team for the Cayman practice and specializes in Trust and other dispute matters, and has extensive experience in insolvency assignments, working on a variety of court and creditor led appointments. 

Timothy Derksen
Director
Financial Advisory
Deloitte
One Capital Place
P.O. Box 1787 GT
Grand Cayman
Cayman Islands KY1-1109

T: +1 (345) 814 3344            
E: tderksen@deloitte.com            
W: www.deloitte.com 


 

Tristan Relly

Tristan is a Senior Manager with Deloitte’s Financial Advisory Practice.  He has over twelve years of experience in Corporate Finance, Business Analytics, Forensic and Dispute Services and Restructuring. He is a Chartered Accountant (South Africa).

Tristan Relly
Senior Manager
Financial Advisory
Deloitte
One Capital Place
P.O. Box 1787 GT
Grand Cayman
Cayman Islands KY1-1109
 

T: +1 (345) 814 2259            
E: trelly@deloitte.com             
W: www.deloitte.com