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SHAVASB BOHDJALIAN
If you ask an entrepreneur or project promoter to identify the major issue that they have to deal with apart from business risk, probably their main concern will be lack of funding as banks around the globe have cut down on lending and become risk-averse.
The alternative is to raise money from private and institutional investors, but here arises the need to secure regulatory approval and operate through a legal and regulated structure, which on the one hand should provide investor protection, transparency and at the same time is flexible, easy to understand and cost effective for the promoters to operate.
Cyprus is the ideal place for entrepreneurs and project promoters to raise finance as the country offers a number of solutions such as establishment of private funds or formation of public companies and listing of securities on the Cyprus Stock Exchange.
Cyprus Private Funds- ICIS
Cyprus is already home to more than 70 privately owned but regulated funds, known as International Collective Investment Schemes (ICIS), which can invest in a mix of assets including equity, bonds and derivatives as well property and large projects.
An ICIS is essentially a limited liability company operating under the supervision of the Central Bank of Cyprus with the following main characteristics:
1) The share capital is variable and the shares are issued by the company depending on capital injections and redemptions without the need to go through the Registrar of Companies
2) The management shareholders are vetted and approved by the Central Bank of Cyprus
3) Every ICIS needs to have minimum 2 Executive Directors
4) The objectives and Investment Strategy of the Fund is clearly defined in the Investment Memorandum
5) The Fund can raise money from only 100 investors
6) The assets of the Fund are held by a Custodian Bank
7) An independent administrator firm calculates the Net Asset Value (NAV) of the Fund and reports it to the Central Bank and is also responsible for issuing and canceling the shares
8) A regulated Investment Firm is usually appointed to be responsible for the management of the Fund.
Listing on Emerging Companies Market of the CSE
An alternative method of raising funds is the establishment of a public holding company and the listing of the shares on the Emerging Companies Market (ECM) of the CSE.
The ECM is a Multilateral Trading Facility (MTF) under the EU’s MiFID rules operated by a regulated entity, the CSE. The ECM is very similar to what the AIM is for the London Stock Exchange, but with the added advantages that it has very simplified listing rules. One of the main listing requirements is that listed companies need to maintain an approved Nominated Advisor (Nomad) at all times.
In this market, there is
– no requirement for daily volume, hence no need to do fictitious trades, which not only violate exchange rules but also add up in brokerage fees,
– no maximum ownership rule, hence one beneficial owner can hold 100% control, which means no need to park stocks illegally under different names,
– no minimum market capitalization criteria, hence even if value of shares declines, the company does not risk expulsion from the stock exchange.
The whole listing process takes 2-3 weeks to complete and the fees are very reasonable.
In addition to shares, private companies may also list bonds on the ECM through simplified rules.
The CSE maintains the Share and Bond Registry in electronic format, thus giving added assurance to investors that their asset is maintained properly by an independent entity.
Trading in the shares and bonds may be done remotely through electronic online trading platforms or through off-the-floor transactions executed directly through the CSE.
Following a successful listing, the CSE will provide the ISIN unique identification number for the listed shares or bonds, allowing professional investors to access information through their Bloomberg and Reuters terminals.
The CSE also publishes the daily price on its web site in English, which can be linked to the web site of the listed company, thus providing shareholders and other investors with additional information.
Using the ECM/CSE to your best advantage
A listed company on the ECM/CSE is ideal for beneficial owners to:
– Issue shares to raise money from retail investors,
– New ventures or startups wanting to have diverse and flexible shareholder base,
– Acquire other companies, listed or private, operating anywhere in the world either by cash or through share issue/share swap,
– Lend money to other entities of beneficial owner,
– Issue debt or bonds which can subsequently be listed on the CSE.
An ICIS structure is usually used by those who will be approaching professional investors such as Private Equity and Venture Capital Funds for capital and will need to prove beyond doubt that with the exception of the business risk, all other risks have been covered and the owner of the project is offering a level playing field to the new investors.
A listed option on the other hand means that investors fully trust the Board of Directors and majority shareholders to protect their interests and wish their company to operate through a flexible structure.
The important consideration is that Cyprus offers a solution for both situations that are very flexible, functional and equally important cost effective.
(Shavasb Bohdjalian is a certified Investment Advisor and CEO of Eurivex Ltd (www.eurivex.com), a Cyprus Investment Firm, regulated by CySEC, license #114/10 offering forex solutions and portfolio management services. Eurivex is also approved by the Cyprus Stock Exchange to act as Nominated Advisor (Nomad) for listings on the Emerging Companies Market. The views expressed above are personal and do not bind the company and are subject to change without notice. For information, contact [email protected])
