Cayman Islands exempted companies have long been the vehicle of choice for listings on the Hong Kong Stock Exchange (HKSE). In 2016, more than 80% of the companies listing on the Main Board and the Growth Enterprise Market were Cayman companies. There are now nearly 800 Cayman companies listed on the Main Board – representing well over 40% of the total and far outnumbering every other domicile. So the key reason why you should use a Cayman company is not a legal one – you should do so because your investors will be expecting you to.
How has this situation come about? There are a number of factors.
The key technical advantage of using a Cayman listing vehicle on the HKSE is that Cayman corporate law is flexible and requirements of the HKSE listing rules and ongoing requirements can easily be met within the Cayman framework, and the memorandum and articles of the listing vehicle can be tempered accordingly. For example, there is no relevant Cayman law relating to the holding of an annual general meeting or the auditing of accounts. Accordingly, the Cayman company may simply conform its M&A to the required HKSE standards.
A Cayman company looking to list in Hong Kong must prepare a prospectus as required under the HKSE rules. However, there is no Cayman prospectus preparation or filing requirement. This dramatically simplifies the process, as the company can focus on the disclosure requirements under HKSE rules without complex interaction with another set of rules. The HKSE rulebook has specific sections in its listing rules setting out constitutional requirements for a Cayman company, simplifying matters further.
The additional advantages of the Cayman Islands as the jurisdiction of incorporation for a vehicle to be used in a capital markets transaction (and in many other contexts) are already familiar to many:
- It has an English common law legal system, with hundreds of years of case law as its foundation;
- Many statutes have been tailored to accommodate offshore transactions;
- It is politically stable, with the government committed to remaining a British Overseas Territory;
- There are no exchange-control regulations;
- It has a developed, sophisticated and reputable professional infrastructure, with professionals all working to high international standards;
- The availability of legal professionals practising Cayman Islands law in the Asian time zone;
- It has a reliable and efficient judicial system, which is accustomed to dealing with complex commercial disputes;
- It is familiar and acceptable to investors, underwriters, rating agencies and regulators globally; and
- It is a tax-neutral jurisdiction.
There are some other useful features of the Cayman vehicle.
There are minimal local service provider requirements. Every Cayman company must have a registered office situated there, but other than that, there is no requirement to have any director, secretary, officer or other representative resident in the Cayman Islands.
The ongoing maintenance requirements are relatively low for a Cayman company. It needs to make an annual declaration and pay an annual fee. It also needs to file changes to its directors and officers, special resolutions passed by its shareholders and resolutions approving a change in its authorized share capital with the Cayman Registrar of Companies.
An exempted company must have a register of members, but this can be maintained in any jurisdiction. Typically, the register of public shares will be maintained in Hong Kong by one of the major providers. In addition, a branch register will be maintained in Cayman, so it is possible to register transfers of shares not traded on the market free of stamp duty. At the pre-IPO stage, inserting the Cayman company into an existing group structure to become the holding company is typically very simple. In most cases, this is done via a share swap, where the company acquires the equity interests in the operating companies of the group in exchange for an issue of shares to the shareholders.
The Cayman Islands corporate statute has also evolved significantly from its English roots, with innovative features such as Delaware-style statutory mergers and re-domiciliation of non-Cayman companies into the Cayman Islands. These features offer more creative pre-IPO solutions to companies where a share swap is not appropriate.
Using a Cayman company for a listing in Hong Kong is a well-trodden path, for well over two decades.
The HKSE, the Securities and Futures Commission (SFC), as well as sponsors, underwriters, lawyers, reporting accountants and investors are all familiar with the structure. This familiarity, together with the flexibility and simplicity offered by a Cayman company, provides a platform for a smooth listing process and for its ongoing life on the HKSE.
Derrick Kan is a partner in the corporate team at Maples and Calder (Hong Kong)
Maples and Calder (Hong Kong)
53/F, The Center, 99 Queen’s Road Central
Tel: +852 2971 3096