The first Private Equity 2009 seminar in Mauritius was organised by the Board of Investment on 28 and 29 Sept. The Private Equity culture is very new to the business community here. We are pleased to present you with some insights on:
Private equity: Mauritius, an attractive alternative, at a time of unprecedented challenge and change
By Rajeev Basgeet ACA, Director, PwC, Mauritius
Private equity is a mechanism of financing companies that represents an alternative to raising funds on the public equity or debt markets. In certain instances, especially for unquoted companies where the perceived level of risk and uncertainty associated with them is high, private equity can sometimes be an alternative source of finance. Private equity providers become co-owners of these companies and share risk and returns to the extent in which they participate in them. PwC's long-standing close association with the private equity (PE) industry has enabled us to develop a deep understanding of the industry and the opportunities and challenges that it faces.
Before August 2007, the world had experienced a decade-long period of cheap financing. This all came to a sudden halt when the wholesale markets froze culminating into a credit crisis. The PE industry is at a turning point as it sails through this difficult and challenging period, and it is now working harder than ever to maintain and safeguard its level of return.
Whilst businesses and households take time to re-build their respective balance sheets following the previous credit-binge, demand from the PE industry’s traditional investment markets is receding. Consequently, the exit itself is being delayed. The recent unprecedented financial events are re-shaping the PE business model.
The PE industry is now seeking investment opportunities in new markets. The BRIC (Brazil, Russia, India, China), Middle Eastern and African regions represent a huge opportunity for the PE industry to find value, especially when considering the growing middle classes of those jurisdictions. However, in these new markets, new challenges are emerging in terms of regulatory, legal and taxation environments. Investors must conduct extensive due-diligence before channeling investments into these markets.
With the movement of capital between new and old jurisdictions and markets, the tax issues being encountered are often different, and more complex, than envisaged at the outset. Tax structures previously considered secure are now being challenged in certain countries. In this respect, investors should be giving consideration to conducting regular "tax health checks" of their PE structures in order to minimise potential adverse disruption.
The issues observed above have varying implications for the PE sector. Combining all these forces could entail significant changes to how the PE industry conducts its business - ranging from structuring issues to controls, regulatory compliance, tax compliance, reporting requirements and so on.
With this new emerging landscape in the PE world, Mauritius can position itself as an area of opportunity for the PE industry to grow, seek new opportunities and to re-shape its business.
Leveraging from the benefits offered by our offshore sector, PE funds could be structured through a Mauritius resident vehicle with a view to investing in Africa, South Asia and the Middle East. Mauritius has the potential to be a serious, and credible strategic hub for such PE funds. These tax-domiciled vehicles will be administered, controlled and audited in Mauritius, whilst keeping at heart good corporate governance and social responsibility.
In this post-credit bubble environment, Mauritius should aspire to emerge as the new vibrant alternative for the private equity industry.