GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES 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 8
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES 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 ors and their r righ ghts ts • Corp rporate orate contr trol ol • Role e of lawye yers rs • T acklin ling g illeg egal al condu ducts • Conclu lusi sions ons 8
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES Direct ct vs. Indirect rect Investments tments • Direct investm stment nts: s: invest stor r becomes omes owne ner. • Indirect t investm stment nts: : invest stor or become omes 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 ormanc ance
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES 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 8 • Secondary market/After issue market – where previously issued securities trade between investors
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES 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 Conversion rights and economic rights Dividends Interest Board control Usually no voting rights Residual value in liquidation Rank higher than shares 8
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES 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 ors such h as ventu ture re capit ital al and priva vate e equit ity y funds ds • Easy price e discover overy (listin ting g and trading ding) • Efficie ient nt alloc ocation ation of capit ital al across oss indu dustri tries es, and by exten tensi sion, on, socie iety y as a whole. e. • Wealt lth h generation ration for savers rs and inves estors ors – attract active ive invest stmen ent t opport ortunit itie ies with better er return rns than banks ks can offer er • Risk k divers ersif ific ication ation for inves estors tors 8
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES Forei eign gn indirec irect investments estments Chall lleng nges of of 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 of of capit apital al and and lowe lower cos osts ts du due to to the he poten potenti tial al • segmen entat tation ion and saturation ration of of domes estic tic market ets Divers ersif ific ication ation of of 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 ognit ition ion • T ax redu ducti tion on or or avoidanc idance • Lower er intere erest st rates • 8
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES ed ? Where re is capita pital l raised Market et consi nsider derati ations ons • Industr ustry knowled ledge and best pract ctices ices • Quality ty and enforcem rcemen ent of of appli lica cable ble law • Level of of regulat lation ons • Finan inancin cing struct structur uring ing re requ quire irement ments eg eg accessin ac 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 onal al or or domesti estic) c) • 8
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES T ypes of financ ncing ng option ons Equity ity financ ncin ing • Cros oss/dua s/dual listin ing • Issuin ing securi ritie ies throu ough gh subsid idiari iaries es in in forei eign gn market ets • Globa bal deposi ositor 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 omarket et bonds ds 8
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES Equit ity y investm estments ents • Partn tner/Share reholde lder : : not a a creditor ditor; ; rather er a (partial tial) ) owner of of 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 older rights hts (or how much power r will invest stor or 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?) 8
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES Differe rent nt equity y transac nsactions: ons: Private ate transactio nsactions ns • Stock tock pu purc rchase hase agree agreemen ment (for (forei eign gn in invest vestor or acqu acquir ires es stoc tock in in an an existi xisting ng domest estic ic corporati poration) on) • Inc ncorpora orporatio tion of of 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) s) : Publi lic transact nsactions ons (in listed d compani panies) • Incorpora rporation tion + Initial ial public lic offeri ering ng • Open market et acquis isit ition ions • T akeove eovers rs and merger gers 8
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES T ypi pical l practical al questi stions ons 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!) 8
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES Incorpor rporati ation on 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? ome? • 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? 8
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES 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 on of the inves estor tor • Is physic ical al presen ence e mandat dator ory? y? 8
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES Consequences of the different legal nature of 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 8
GLOBALISING YOUR PRACTICE - OPPORTUNITIES AND CHALLENGES Corpor porate ate contr ntrol ol • How is cont ntrol ol obtai ained ned and exercise sed? • How can cont ntrol ol be limited ted By laws s restri tricti tion ons? Shareh eholder lder agreement ements? s? • Are there external rnal cont ntrol l restr trict ctions? ons? Antitrust titrust legisl slati ation on? Publ blic (state) ate) parti rticipati pation? on? • How to maint ntai ain n cont ntrol ol? 8
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