Foreign ign dir irect ct in investm stments ents Th The role - - PowerPoint PPT Presentation

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Foreign ign dir irect ct in investm stments ents Th The role of lawy wyers ers

Juan Javie ier Negri ri

NEGRI RI & PUEYRR YRREDON ABOG OGADO DOS

GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES

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Outline line of Presen entat ation ion

• Direc

ect t vs. indir irec ect t inves estm tmen ents ts

• Capit

ital al market ets

• T

ypes es of financ ancing ing options ions

• Equity

ity invest stmen ents ts

• Investors
• rs and their

r righ ghts ts

• Corp

rporate

• rate contr

trol

• l
• Role

e of lawye yers rs

• T

acklin ling g illeg egal al condu ducts

• Conclu

lusi sions

• ns

GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES

Direct ct vs. Indirect rect Investments tments

• Direct investm

stment nts: s: invest stor r becomes

• mes owne

ner.

• Indirect

t investm stment nts: : invest stor

• r become
• mes

s lende der Specifi fic (as oppo pose sed d to systemic) temic) risks ks change: ange: Direct investment: business risk; depends on owners’ business skills Indirect investments: financial risk; depends on third party’s perfor

• rmanc

ance

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Capital Markets ts

What is a capital market? Part of the financial system concerned with raising long-term capital by trading securities and other long-term investments. What is a security? A tradeable financial instrument representing a claim; e.g shares or debt securities like bonds.

• If bonds (indirect investments): lender-borrower relationship.
• If shares (direct investments) ownership/management issues.

T ypes of capital markets:

• Primary market/New issue market – where securities are first issued

and issuer receives funds – IPO, bond issuance

• Secondary market/After issue market – where previously issued

securities trade between investors

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Securities es in capital markets

T wo main n securiti rities es in the global al capita tal l markets: ts:

Equit ity y (shares res) Debt bt (bond nds) Holder is owner Holder is creditor Voting and economic rights Conversion rights Dividends Interest Board control Usually no voting rights Residual value in liquidation Rank higher than shares

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Why use capit ital al mark rket ets?

• Altern

ernat ative ive sourc rce e of finan ancin ing g (exclu ludes es bank-ba base sed d lending ding)

• Better

ter pricin ing, g, longe ger r maturi ritie ies and wider er inves estor tor base

• Fundin

ding g for riski kier er inves estme tments ts (not support ported ed by banks ks)

• Exit

t route e for certain ain inves estor

• rs such

h as ventu ture re capit ital al and priva vate e equit ity y funds ds

• Easy price

e discover

• very (listin

ting g and trading ding)

• Efficie

ient nt alloc

• cation

ation of capit ital al across

• ss indu

dustri tries es, and by exten tensi sion,

• n,

socie iety y as a whole. e.

• Wealt

lth h generation ration for savers rs and inves estors

• rs – attract

active ive invest stmen ent t

• pport
• rtunit

itie ies with better er return rns than banks ks can offer er

• Risk

k divers ersif ific ication ation for inves estors tors

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Forei eign gn indirec irect investments estments

• Chall

lleng nges of

• f raising

ng fund nds dome mest stica call lly

• Capita

tal requirem remen ents too big for domest stic market et

• No

No local al appeti etite te to to invest est in in equity ty

• Why foreign

gn capi pital? tal?

• Large

arger pool pool

• f
• f

capit apital al and and lowe lower cos

• sts

ts du due to to the he poten potenti tial al segmen entat tation ion and saturation ration of

• f domes

estic tic market ets

• Divers

ersif ific ication ation of

• f count

ntry risks ks and associate iated econom nomic ic risks

• Poten

ential tial to to hedge ge forei eign gn exchang hange risk

• Increased

eased globa bal recogn

• gnit

ition ion

• T

ax redu ducti tion

• n or
• r avoidanc

idance

• Lower

er intere erest st rates

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Where re is capita pital l raised ed?

• Market

et consi nsider derati ations

• ns
• Industr

ustry knowled ledge and best pract ctices ices

• Quality

ty and enforcem rcemen ent of

• f appli

lica cable ble law

• Level of
• f regulat

lation

• ns
• Finan

inancin cing struct structur uring ing re requ quire irement ments eg eg ac accessin cessing sh shar aria iah financ ncing ng

• Market

et liquidity ity for firm securi uriti ties es

• Pricing

ing stand ndard ards (intern ternat ation

• nal

al or

• r domesti

estic) c)

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T ypes of financ ncing ng option

• ns

Equity ity financ ncin ing

• Cros
• ss/dua

s/dual listin ing

• Issuin

ing securi ritie ies throu

• ugh

gh subsid idiari iaries es in in forei eign gn market ets

• Globa

bal deposi

• sitor

tory recei eipts ts

• Euro-equ

equit ity market et

• Debt financ

ancin ing

• Forei

eign gn bank loan ans

• Forei

eign gn bonds ds

• Euromark
• market

et bonds ds

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Equit ity y investm estments ents

• Partn

tner/Share reholde lder:

: not a a creditor ditor; ; rather er a (partial tial) ) owner of

• f the

the company any

• Many domes

estic ic aspec ects s to the transac sactio tion: n: Exten ent of partne ner/s /shareh hareholder

• lder rights

hts (or how much power r will invest stor

• r enjoy?)

?) Nature re of legal al entity ty Where re are rights ts stated ed? (statu tutes tes, bylaws aws, usage ge of trade, de, court rt preceden edents ts?)

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Differe rent nt equity y transac nsactions:

• ns:

Private ate transactio nsactions ns

• Stock

tock pu purc rchase hase agree agreemen ment (for (forei eign gn in invest vestor

• r acqu

acquir ires es stoc tock in in an an existi xisting ng domest estic ic corporati poration)

• n)
• Inc

ncorpora

• rporatio

tion of

• f a ne

new domes domestic tic compan company (w (with th forei foreign gn inves nvestor tor as as an an initial ial shareholder) eholder)

Publi lic transact nsactions

• ns (in listed

d compani panies) s):

• Incorpora

rporation tion + Initial ial public lic offeri ering ng

• Open market

et acquis isit ition ions

• T

akeove eovers rs and merger gers

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T ypi pical l practical al questi stions

• ns in all cases

es for lawyers rs to respond: pond:

• How is money brought in?
• ...and how does it leave?
• Are there controls and costs involved?

Tax implications at exit or on cash flows?

• Cross listing allowed? Implications?

(More to come!)

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Incorpor rporati ation

• n of a n

new company pany

• Are there

re differen ferent t corporat porate e types availab ilable? le?

• Are

e there re partic icula lar benefit efits s in the selec ection ion outc tcome?

• me?
• Do all types grant

nt limit ited ed liability bility to partner ners/s /shareholder hareholders?

• Are

e they all simila lar r as to tax conseq equenc ences? es?

Acqui quiri ring ng stock in an existing ng entity ty

• Which

h way to ensure re again inst past contin inge genc ncie ies?

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The e investor estor

• Who will be inves

estin ing? g?

• Are

e all forei eign gners ers alike? e?

• Are

e all taxed ed alike? e?

• Is treaty

ty protec tectio ion/in /insuranc surance e availabl ilable? e?

• Indiv

ivid iduals als or corpor porate ate entit itie ies?

• Need

d for regis istration ration of the inves estme tment

• Need

d for regis istrati ration

• n of the inves

estor tor

• Is physic

ical al presen ence e mandat dator

• ry?

y?

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Consequences of the different legal nature

• f equity transactions:

New shares to be issued Existing shares to be bought Which corporate activity required from issuer/seller?

• Limits?
• T

ypes of shares

• Classes of stock

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Corpor porate ate contr ntrol

• l
• How is cont

ntrol

• l obtai

ained ned and exercise sed?

• How can cont

ntrol

• l be limited

ted By laws s restri tricti tion

• ns?

Shareh eholder lder agreement ements? s?

• Are there external

rnal cont ntrol l restr trict ctions?

• ns?

Antitrust titrust legisl slati ation

• n?

Publ blic (state) ate) parti rticipati pation?

• n?
• How to maint

ntai ain n cont ntrol

• l?

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Manage agerial l issues

• Direc

ectors

• rs (local

als? s? expat pats?) s?)

• Direc

ector tors

• Direc

ectors tors standard dards

• Ultra

ra activi iviti ties es

• Fees

Auditor ditors Govern ernanc ance e consi sideration derations

Compliance pliance

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Divestitu stiture (Which way out?) ?)

• T

ag along g / Bring ng along ng (Pigg ggy y back) k)

• Put

t option ions

• Call

ll option

• ns

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T ackli kling ng illegal gal cond nduc uct

• Lawyers play a role in preventing illegal conduct (IBA/OECD task force)
• “A lawyer must not act unethically or in any manner

that condones, encourages or constitutes participation in illegal conduct” “A lawyer is well placed not only to identify or detect illegal conduct, but also to facilitate it, by action or inaction,

• r prevent it”

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Eight key principles:

• Do not facilitate illegal conduct: undertake necessary due diligence.
• Do not misuse confidentiality to shield wrongdoers.
• Identify and verify client, ultimate beneficiary and origin of funds.
• Advise client of consequences and recommend alternative solutions.
• Verify possible existence of multijurisdictional risk.
• Discourage use of illegally obtained information.
• Obtain and maintain updated beneficial ownership information
• Transparent, accurate and truthful advertising

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Illegal l con

• nducts
• Tax evasion
• Money laundering
• Terrorist financing
• Corruption
• Insider trading
• Evading international sanctions

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Which professiona ssional l role to the lawye yers? s?

• Documen

ent t drafti fting

• Sugges

gestin ting g altern ernatives atives

• Legal

al repres resentat entatives ives / agents ts?

• Can they act as direc

ector tors? Or is this a conflic lict? t?

• Mere

e advis isors

• rs?
• Are

e they couns nsel el to the shareholders eholders and to the compa pany? y?

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Struc uctu turing ng a Deal

• Conside

ider

• institution

itutional al and regula lator tory differenc ferences es

• differ

feren ent tax laws acros

• ss countri

tries es

• intere

erest rates es and other er econom nomic ic fundam damen entals tals

• polit

itic ical al risks ks, differ feren ent market et risks etc etc Corp rpora

• rate,

te, financ ncial ial and legal al strategy tegy should ld minim imize ize cost of financ ncin ing, g, maint ntain ain differe erent nt types s of risks ks within in accept eptab able le levels els and seek k seamles mless trans nsact action ion

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Market t Requi uire rement nts

In In IPOs/ Priv ivate ate placem emen ents ts/ Bond issuanc ances es:

• Regis

istration ration of

• f securities

rities and exem empti ptions

• ns
• Bes

Best op

• ptio

tions ns/Moda /Modali litie ties of

• f rais

raisin ing mon money fr from

• m glob

global al capital apital market et Costs ts of

• f raisi

sing capital tal

• Regula

lator tory and advis isor

• ry fees
• Road shows

Interes rest coverag erage

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Due Diligence gence

• Statutor

tory and exchange ange market et requir iremen ements ts

• Other

er issues es to to conside ider:

• Contin

tinuin ing obligations igations

• Disclos

losures res and level el of

• f disclos

losures res

• Invest

stor

• r expec

ectat tation ions

• Divide

idend/c nd/coupon

• upon paymen

ents ts

• Trans

nsparent arent corporate porate strateg tegy

• Corp

rporate

• rate govern

ernanc ance

• Financ

ncial ial reporti

• rting (audit

ditin ing) g)

• Prep

repare are pr prosp

• spec

ectu tus (b (busi sine ness ss plan plan wi with th detailed detailed inform nformatio tion ab abou

• ut the

the company any and the the securi ritie ties being ng issued) ed)

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Disclo losu sures s and Invest stor r Protecti tion

• n

Policy cy rationa

• nale for

for disclos closure ure

• T

ran ranspa sparenc rency (inclu (includin ing both both iss issuer uer an and mar market et tra transa nsact ctions ions transp nsparenc arency)

• Market

et efficiency iency (in re re secur uriti ities es prici cing) ng)

• Investo

estor protec tection tion and confiden idence ce

• Good (corpo

rporat rate) e) governa rnanc nce

Liabili bility ty for –

In Inad adeq equat uate or

• r defecti

ective ve disclosure, isclosure, Deceit, Deceit, Misrep Misrepresenta resentation tion by by action

• n/om

/omission ssion

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Conclusio usions ns

Compa

• mpani

nies es have have wi wide de choic hoice rela relatin ting to to capi apital tal rais raisin ing, g, and and in inve vest stors

• rs

have wide choic ice of

• f inves

estmen ment altern rnatives atives

• What

at type of

• f secur

urit itie ies – equit ity or

• r debt?
• Where

re to to raise ise the capit ital al – domesti estic or

• r global

al market ets?

• Direct

ect or

• r indir

irect ect inves estmen ents?

Lawye yers rs will always ys play y a criti tical al role e in the entire re proces ess. But they y must also watch h over r the legal ality ity of the transaction. saction.

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