Listed companies must gear up for the new normal
What can be termed the New Mauritius Hotels (NMH) Saga has been making the headlines in the financial press for some time now. This is an important event for the local business community not only because of its huge financial implications for the parties involved (especially for the Rogers Group) but also because it offers an opportunity to clarify some highly technical and legal aspects of our Securities Act of 2005 and the Securities (Takeover) Act of 2010. The outcome of the investigation being led by Mr Kriti Taukoordass, appointed by the FSC to inquire into the matter, could also have serious consequences to which we shall come later in our comments.
The facts surrounding the controversy are as follows: on the 16th and 18th February 2016, Rogers Group, Espitalier Noel Ltd (ENL) and Swan Life Ltd, three listed entities with substantially common ownership and crossed directorships, purchased 45.5 million shares of NMH from three existing shareholders, namely PAD, Taylor Smith and Kingston Asset Management (the latter two entities controlled by the Taylor family). The purchase price per share was Rs 29 and Rs 29.55, and the 45.5 million shares represented 9.4% of the total shares of NMH. Even by international standards, such a substantial transfer of shares in a major listed company would be considered a significant transaction and therefore calls for close scrutiny by regulators. In the event, the Stock Exchange of Mauritius has found no cause for concern as indeed did the Financial Services Commission as stated in its initial comments on the issue.
There were some early grumbles from different sources regarding the circumstances in which the cross had occurred under the existing rules of the Stock Exchange of Mauritius. However the above transaction would most probably have gone through, had it not been for the intervention of the company Sunnystars Resorts Holdings Ltd which has legally challenged the said acquisition of shares by Rogers, ENL and Swan Life.
The locus standi of the complainant was its claim to be a party to the transaction that had been deprived of its rightful opportunity to acquire a substantial number of shares in NMH as a result of an alleged “concerted” manoeuvre by the directors of the Rogers Group and Swan Life Ltd. The contention of Sunnystars RHL is basically that Rogers and ENL, by virtue of existing cross shareholdings and directorships, are in a position to control and influence the Board of Swan Life Ltd — Rogers holds 28% of shareholding in Swan Life Ltd and its Board Chairman sits as a director of Swan Life.
The implication of such an averment is that Rogers, ENL and Swan Life Ltd have acted in concert to acquire the 9.4% shares of NMH and as a consequence have crossed the threshold of 30% of share ownership in the company. Sunnystars RHL then proceeds to argue that since this transaction would result in the de facto control of NMH by the Rogers-ENL-Swan Life Ltd trio, they were legally bound to make a mandatory offer to purchase all outstanding shares in the company at the acquisition price of Rs 29 – Rs 29.55. Presumably the reasoning of the directors of Sunnystars RHL is that Rogers and others would probably not have proceeded with the acquisition had they been constrained by the legal obligation of a mandatory offer to all shareholders at that price, which would have opened the way for them to acquire the shares on offer (9.4%).
A few concluding comments
The task lying ahead for Mr Taukoordass is an arduous one. The resolution of this complex issue relies on the interpretation of the law as it stands in determining whether there has been “concerted action” or not – whether Rogers through its ownership of 28% of Swan Life Ltd and the composition of its Board can effectively influence the decision-making process at the company.
In some jurisdictions such as Canada, the Mergers and Acquisitions regulations define the circumstances under which a person is deemed to beneficially own securities held by others and impose requirements to that effect. Such interpretative clauses do not exist in our own legislation.
One worrying aspect of this whole affair is that it could negatively impact on the appetite of large companies to seek listing on the Stock Exchange. Beyond the compliance obligations, which are imposed as part of the requirements for listing on the official market, it is possibly the risk of such exposure to public debate which may act as a dampener on the will to go for listing.
There are of course several benefits for actually wishing to be on the Stock Exchange, foremost among which would be the liquidity factor. The holders of shares in listed companies or potential investors in equity put a high premium on the fact that they can actually “monetize” this class of asset fairly easily through the market. Within the framework of our liberal economic model and our ambition of making Mauritius into a regional financial centre, the presence of foreign institutional investors in the ownership structures of our local companies is a positive sign. Since these investors have access to the best information and research, their investments in the equity of local companies can be regarded as a vote of confidence for the latter as well as for the country. Finally, listed companies enjoy the option of raising loan capital without having recourse to the more constraining and often more costly bank financing.
Any temptation to “go private” through delisting or to shun the listing option would therefore be a retrograde and knee jerk reaction damaging for the prospects of development of Mauritius as a dynamic and modern financial centre. In fact the “right” attitude would be to come to terms with the fact that compliance with strict transparency and sharing of information rules as well as the occasional public tiff with critics, analysts and commentators are part of the new normal.