Quarterly review

Finance Minister Marco Archer projected that the government would produce an operating surplus of about $121 million. 

Politics

Lawmakers approve $121M surplus budget
Cayman Islands legislators adopted a $735 million spending plan for the 2015/16 fiscal year.

Finance Minister Marco Archer projected that the government would produce an operating surplus of about $121 million and reduce central government’s overall debt to just above $500 million by June 30, 2016, the end of the fiscal year.

The results, barring any natural disasters or unforeseen expenses, should put Cayman back within legally mandated budgeting requirements, Archer said. That means the United Kingdom would no longer have to approve the overseas territory’s budget prior to its presentation to the Legislative Assembly.

However, the finance minister cautioned the public that the government was simply unable to start borrowing huge sums of money ahead of the 2016/17 budget year.

“We will only spend to the extent that we can afford to,” Archer said. “We do not plan to enter into any financial arrangements to pay for recurring expenditure.”

On July 1, Cayman Islands civil servants received a four percent “cost of living” pay increase. It was the first permanent pay hike government workers have received since 2008.

Archer said the civil service pay rise would be funded from current government cash and that no taxes would be increased to pay for it. The proposed budget includes no new revenue measures.

The budget includes a duty rate reduction for diesel fuel imported by Caribbean Utilities Company that is due to take effect in January. The rate cut will take the duty charged to CUC down from 50 cents per gallon to 25 cents per gallon and is expected to result in a modest savings on the average household electric bill.

Additional expenses in the upcoming budget include a $3.8 million boost to Cayman Islands Monetary Authority operations, which the government was forced to fund after a new directors licensing fee did not come in as expected.

Legislative plans
Premier Alden McLaughlin said the Progressives-led administration would support recommendations from the recently-concluded Minimum Wage Advisory Committee, including the establishment of a minimum wage rate, which was recommended in the committee report at $6 per hour.

The implementation date for the minimum wage was set by the premier as March 1, 2016 – that requires a law will be passed and that changes to other legislation related to the minimum wage can be effected by then.

The premier also said the Progressives-led government would seek to implement Daylight Saving Time by March 2016, a move that he said was supported by the majority of Caymanians and which he believed would assist both the local tourism and financial services industry.

The premier added the government would attempt to reform the long-debated Legal Practitioners’ Law and that certain requirements would be set for all law firms regarding the recruitment, benefits and career development of Caymanians within the legislation.

Financial services

Offshore incorporations continue to grow
The Cayman Islands saw a 17 percent increase in new company registrations in 2014 over the previous year, according to a report released by offshore law and fiduciary firm Appleby.
In 2014, 11,010 new companies registered in Cayman. With 1,500 more companies than in the previous year, Cayman stood out among offshore centers in terms of the percentage of new incorporations.

“Cayman was one of the hot spots for new incorporation activity in 2014,” said Richard McMillan, managing director of Appleby Trust (Cayman) Ltd.

“With the increase in new registrations, the total Cayman registry is now poised to break through the 100,000 barrier for the first time in its history, with a total at year-end of 99,459 companies.”

Incorporations of exempted companies, entities where the proposed activities are to be carried out mainly outside the Cayman Islands, made up 91 percent of all new companies added to the register. Foreign companies, those incorporated outside the Cayman Islands but registered in Cayman, represent 5 percent of the total. The report found the annual number of foreign company registrations now shows 14 years of uninterrupted growth, with 592 foreign companies registered in Cayman last year.

In all eight offshore jurisdictions covered by the report, 93,159 new offshore companies were incorporated in 2014, slightly less than in the previous, as the level of new incorporations decreased only in the BVI and Isle of Man by 5 percent and 10 percent respectively. But despite slowing growth figures, the BVI is still the leader in the absolute number of new incorporations with 50,834 during 2014.

Mauritius is the fastest growing offshore jurisdiction for new incorporations with a 20 percent increase over the previous year.

“There are 672,500 companies now registered across the offshore jurisdictions in which we operate, some 45,000 more than there were five years ago in the immediate aftermath of the global recession,” said Farah Ballands, partner and global head of Fiduciary & Administration Services at Appleby.

“Most offshore jurisdictions have had a good year, reporting increases to the total number of active companies on their registers of between 1 percent and 4 percent.”

Cayman also registered a record number of new partnerships last year, statistics released by the Cayman Islands General Registry show. The 2,893 new partnerships represented a 22.17 percent increase over 2013 and brought the number of active partnerships on the register to a record 15,528.

Offshore deal activity down, Cayman retains lead
Despite a significant drop in the volume of offshore transactions, the average size of mergers, acquisitions and initial public offerings reached the highest on record.

Law and fiduciary firm Appleby’s Offshore-i report covering offshore deals in the first quarter noted that while the number of transactions across jurisdictions dropped significantly compared to the previous quarter, the total deal value of US$68.3 billion remained the same on the basis of three mega-deals, each worth in excess of US$5 billion.

Cayman remained the most popular offshore jurisdiction for offshore deals, with 132 corporate transactions, representing 25 percent of all deals. The British Virgin Islands trailed Cayman with 85 deals, followed by Bermuda with 84, and Hong Kong, where 80 deals were recorded.

Mirroring the activity in other jurisdictions, Cayman saw lower deal volume but higher transaction values.

All transactions involving Cayman entities totaled US$17.4 billion in the first three months of the year. Three deals exceeded US$1 billion, including the acquisition of Cayman-incorporated communication equipment manufacturer Highlight Holding by Bermuda-based Highlight China for US$4.7 billion.

While the majority of the transactions concern international acquirers buying offshore assets, Appleby also examined outbound deals in which an offshore jurisdiction acted as an acquirer. With US$31.2 billion, Cayman recorded the most spending on overseas transactions. This contributed to a quarter in which offshore jurisdictions spent a total of US$84.7 billion, an increase of 32 percent over fourth quarter 2014.

Overall, 537 first-quarter deals in 2015 represented a 24 percent decline from the previous quarter. However, the average deal value, which matched the previous quarter, is among the highest in the last decade.

“At more than US$68 billion for the first quarter of the year, cumulative deal value remains at the same high level as the preceding quarter, despite there being more than 150 fewer transactions,” said Cameron Adderley, partner and global head of corporate.

“The result, clearly, is a bumper average deal size, which has been topped in only two quarters over in the past decade.”

The quarter’s average deal size of $127 million was boosted by 14 deals worth more than $1 billion each, including three $5 billion-plus transactions and two additional deals worth more than $4 billion each.

Since 2004, there has been only one quarter that included three $5 billion deals.

Low interest rates and cash on balance sheets have helped drive big deals, while mergers and acquisitions proved a quick way to add revenue at a time when existing markets are mature or subdued, and opportunities for growth appear limited, the report said.

New Maritime services zone
In April, government approved a designated special economic zone for maritime services companies with the aim of bringing shipping companies and maritime service providers to Cayman.

Government passed an order in Cabinet setting out the types of companies that are permitted to establish a physical presence in the newly created Cayman Maritime Services Park of Cayman Enterprise City.

The special economic zone allows zone companies to benefit from Cayman’s tax-neutral environment in combination with reduced red tape, lower registration fees and no work permit fees.

The types of companies that can establish a presence in the Maritime Services Park include ship owners, brokers and financiers, freight trading, operations, logistics, vessel management, consulting and research companies operating in the shipping industry.

The idea was first touted at last year’s Cayman Islands Shipping Summit by Premier Alden McLaughlin, who called the Cayman Islands “an ideal hub” for the shipping and maritime industry.

The Cabinet order provides that “in respect of Islands flagged vessels, direct transactions with the Maritime Authority of the Cayman Islands shall not be permitted.” The rule requires zone companies to use the services of existing local service providers in their dealings, such as vessel registration, with the Maritime Authority.

Sherice Arman, Maples and Calder lawyer and president of the Women’s International Shipping and Trading Association in Cayman, said the Cayman Maritime Services Park underscored the importance of the Cayman Islands in the world of shipping.

“Businesses which are set up in the Cayman Maritime Services Park will benefit from the special concessions provided to participants in Cayman Enterprise City’s special economic zone, and it is already generating considerable interest in this space.”

Walkers re-enters professional services business
Offshore law firm Walkers announced the launch of Walkers Professional Services in mid-June in response to client demand.

Walkers exited the lucrative professional services business line when it sold Walkers Management Services to Intertrust in 2012. At the time Walkers Management Services was headquartered in Cayman, employed more than 100 people in six countries and generated annual sales in excess of $50 million.

Tim Buckley, a partner in Walkers’ Cayman office, who has taken the lead in developing Walkers Professional Services said, “Many of our clients have told us unequivocally that they want Walkers to provide certain corporate and structured finance services and that is the genesis of this new business.”

Walkers Professional Services’ core focus will be on providing registered office, corporate and company secretarial services. The business will also provide fiduciary services to structured and asset finance vehicles to service the needs of its clients.

“We have made a conscious decision to focus on those areas which are complementary to our legal services offering. We have made a significant investment in technology and resources and we believe that Walkers Professional Services will set a new benchmark in the quality of these types of services,” Buckley said.

In an expansion of its international network Walkers also plans the opening of an office in Bermuda by the end of this year, making it the first major international offshore firm to enter the Bermuda market.

Walkers intends to provide a full service operation in Bermuda, including the practice areas litigation, insolvency, corporate, investment funds, finance, insurance and trusts.

The launch of the Bermuda office before the end of the year is subject to obtaining the necessary licenses and approvals.

 

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(L – R) Sherice Arman; Tim Buckley; Farah Ballands
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Michael Klein
Michael Klein Editor Pinnacle Media Group Ltd. PO Box 1365, Grand Cayman, KY1-1108, Cayman Islands T: 345-326-1720C: 345-815-0064 E: mklein@pinnaclemedialtd.com Michael is a financial journalist and copywriter.  In the past he has been responsible for the Risk Management and Corporate Finance sections of a British monthly Corporate Treasury publication.  He has written various financial handbooks, notably on European Banking and Cash Management and the Debt Capital Markets.   In addition he has worked as a copywriter for banks and investment funds and served as corporate communications consultant to US and European blue chip companies.   Michael holds an MA in Political Science and International Law from the University of Bonn in Germany. 

Pinnacle Media Ltd

Cayman Financial Review is the only magazine which promotes the Cayman Islands financial services industry at a local and international level. Produced by Cayman’s leading printing and publishing company Pinnacle Media Ltd, the Cayman Financial Review is published quarterly and is distributed in print and online to organisations and associations worldwide as well as at key financial conferences.

Over 30,000 online and targeted printed copies are distributed to clients, their nominated local and international contacts, relevant conference participation lists and a current researched international contact list continuously updated and prepared by Pinnacle Media Ltd. In addition the product has a fully integrated website, a link of which will be sent to ‘Top 500’ legal, accountant, government, insurance, financial service and hedge fund contact list in United States, United Kingdom, Europe, South East Asia, Dubai and the South Americas.
 

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