Corporate advisory services in Mauritius: all work, no play?

30/03/18

Successive governments and global business stakeholders have worked tirelessly over the last 25 years to establish Mauritius as the preferred conduit for investments in Africa, leveraging off its investor-friendly double-tax treaties, competitive tax regime and political stability. However, having signed in July 2017 the OECD’s Multilateral Instrument (MLI) - what next?

Mauritius is ranked third in Africa in the latest Global Financial Centres Index and whilst admirable, Government and financial services professionals are acutely aware of shortcomings and ambition to reinvent the country as a capital-raising platform for cross-border investments into Africa.

For Mauritius to remain competitive, it needs more than fund administrators and accountants which the country has churned out in spades. It needs to demonstrate to companies or funds keen to establish their regional or global headquarters in Mauritius that we have world-class corporate advisory services. Let us explore the extent to which Mauritius has capacities in corporate advisory services.

 

Deepening the pool

A number of asset managers and banks, including DFIs, are already firmly anchored on the Island. As a greater number of overseas family offices and HNWIs re-domicile their wealth and assets in Mauritius (the number of USD millionaires grew by 230% over the last decade according to a report by AfrAsia Bank), access to capital is becoming more fluid. Mauritius, offering a tax-advantageous environment to invest capital, can become a platform to connect all these stakeholders for investments into Africa.

 

The recent inward investment by a resident HNWI in one of the largest Mauritian companies is a landmark investment. Adenia Capital Partners, a mid-cap private equity focused on Sub-Saharan Africa, is headquartered in Mauritius and successfully closed its fourth fund of €230m in May 2017.

The stock exchange – a facilitator?


A dynamic stock exchange with a breadth of listed products is central to becoming a regional platform for capital raising. The Stock Exchange of Mauritius (SEM) has a head start – it is one of a few in Africa that can list, settle and trade debt and equity instruments in EUR, GBP, ZAR and USD. Quite the attraction for African companies eyeing overseas investors wary of currency fluctuations.

 

Its domestic-issuer dominance and lack of liquidity are widely known vulnerabilities. In response, SEM introduced a number of reforms and new products over the last few years. For instance, the organisation, with the help of local management companies, has been marketing its dual-listing product in Africa. Since 2013, 13 investment vehicles have raised capital on the SEM through a dual listing. Grit, a quasi-REIT, with a dual-listing on the Johannesburg Stock Exchange (JSE) raised US$121 million in June 2017 and is the only issuer to date that has taken advantage of the new multicurrency platform. The SEM has also drastically reduced its fees and introduced remote memberships in an effort to attract foreign brokers and stimulate trading.

 

There are also signs that the market is becoming more sophisticated and its participants more knowledgeable. For example, there has been a surge in listed specialist debt securities in the past 18 months (18 new listings in FY17) as local companies increasingly consider these instruments legitimate alternatives to bank funding. Other products introduced in 2017 include a fixed income ETF and Structured Products.

 

Sophisticated corporate advisory services

Overseas companies have tended to only use back office services in Mauritius necessary to maintain their fiscal incentives. High value services such as valuation services and corporate finance services are reserved for foreign professionals or firms.

Yet, capacities in corporate advisory services on the Island are well developed, as herein explored. There are clear opportunities for local financial services firms to export their services to clients located in more expensive jurisdictions.

 

  • M&A – below the radar, hive of activity

A few commercial banks and asset management companies have opened a corporate finance arm over the last few years, some like MCB Capital Markets more successfully than others. Most of the Big Four and mid-tier accounting firms have a corporate finance practice and there are a few independent corporate finance ‘boutiques’ with experienced dealmakers like Harland Capital.

The extent of M&A activity is difficult to gauge as there are no league tables in Mauritius. The majority of deals are below the radar and not publicised. For instance, a French entrepreneur was given advice on selling a stake in his business but the tender process was run like that of a big ticket deal. The last few years have seen an uptick in cross-border M&A activity.

 

  • Transaction support services – seasoned professionals

Financial due diligence services (FDD) are typically provided by the accounting firms. Vendor due diligence in Mauritius is rare and certainly not as prevalent as in more sophisticated markets. Commercial due diligence services are almost non-existent. The increase in cross-border activities in Mauritius, means that the local due diligence professionals have had greater exposure to complex deals and had to work with experienced due diligence specialists. For example, we provided buy-side FDD for the €200m acquisition of a regional company and have worked on cross-border transactions in Reunion Island, Madagascar and Kenya.

  • Capital markets – evolving fast, regulation playing catch-up

Capital markets are governed by the Financial Services Act, the Financial Services Commission and its Rules & Regulations, the SEM Listing rules and the Companies Act. There are Takeover Rules in force but there is an urgent need for revisions to certain aspects of the Rules like the insider information Rules.

 

Some of the public transactions over recent years have been relatively complex. For instance, the hostile bid rumours around New Mauritius Hotels or the reverse takeover of IBL in 2016 to create the largest company in Mauritius.

 

There have only been a handful of domestic IPOs in the last few years but more than a dozen dual listings of investment holdings have been completed since 2013.

 

Management companies such as Perigeum Capital have advised on the listings: preparing the listing particulars, providing transaction advice and compliance services.

Other providers of capital markets advice are the largest accounting firms and the corporate finance arm of some banks. For example we advised on IPOs, voluntary and mandatory offers and rights issues, whilst SBM advised on the US$150 million equity raise by the African Export-Import Bank, an investment grade rated multilateral financial institution, via Depositary Receipts in October 2017.

 

  • Debt and Capital Advisory (D&CA) – a fairly recent addition

D&CA as a specialist product is a fairly recent addition to the local advisory landscape. The largest accounting firms, corporate finance boutiques and certain local banks like Barclays and MCB provide these services but all on a varying level of scale and complexity. At PwC, we launched our specialist D&CA desk last year and subsequently advised on deals ranging from a vanilla property loan to a project finance facility and an acquisition finance facility.


Whilst there is one local ratings company – CARE Ratings,  a joint venture between local banks and an Indian ratings company – corporate bonds, whether listed or not, are not required by law to be rated. Clearly an area for improvement.

  • Valuation and modelling services – combining global expertise with local knowledge

A number of firms including the Big Four, provide valuation and financial modelling services. Financial modelling is arguably a commodity product which can be outsourced to a lower-cost jurisdiction such as Mauritius. Training and modelling standards across the members of global accountancy firms are standardised, akin to a Big Mac. Finance professionals have extensive experience in building complex models for a variety of sectors ranging from renewables to agriculture to hospitality.

 

Typically, valuation specialists in Mauritius report on valuation issues in the context of a transaction. However, the accounting firms also provide fair value measurements for financial reporting purposes for investments as far as Nigeria and India, combining access to global sector expertise, through their network of firms, with local knowledge and skills.

  • Business recovery services – promoting Mauritius as a trustworthy jurisdiction

Insolvencies in Mauritius are principally regulated by the Insolvency Act 2009 which, like most business laws and law practitioners in Mauritius, has a strong UK flavour. The changes to the insolvency legislation in 2009 were essential to make insolvency proceedings and procedures more transparent and promote Mauritius as a modern, secure and credible jurisdiction for lenders and investors. The World Bank’s Doing Business Guide ranked Mauritius first in Sub-Saharan Africa for ‘Resolving Insolvency’ and ‘Enforcing Contracts’.

Major accounting firms and some legal firms have insolvency practices but only a few will have experience of complex cross border deals.

 

Conclusion

Mauritius, in the eye of most foreigners, is an exotic sea, sun and sand destination but there is more than meets the eye. The country has a wealth of experienced and skilled professionals ready and able to provide world-class corporate advisory services for which Mauritius needs to become a serious alternative to companies operating in Africa and to whom major financial centres such London, Singapore or Dubai are closed.

 

Mauritius will also need to invest in human capital through education reforms and by attracting both the skilled Mauritian diaspora and expatriates. It will also have to be more welcoming of these same expatriates and will have to stay abreast of technology and innovation (e.g. Big Data and a new trading platform for the SEM). Planned improvements in air and telecommunications connectivity and reforms to the capital markets regulations (e.g. allowing short selling or repurchase agreement or a secondary market for Government securities) should also help reinforce the promotion of financial services credentials.

Olivier Ma is a Director in Deals, at PwC Mauritius.

Immediately prior to rejoining PwC Mauritius in 2016 and setting up the local Debt and Capital Advisory desk, Olivier spent nearly three years working in London for a tech start-up he co-founded and helped raise more than US$5 million.

Previously, he had spent seven years at RBS Global Banking and Markets in London and Amsterdam in their Leveraged Finance and Project Finance teams. His experience spans new primary leveraged deals, bolt-on acquisition financing, refinancing, restructuring and managing distressed assets.

Prior to RBS, he spent a year advising private equity firms at EY London and worked for PwC for six years in Corporate Finance and Assurance.

Olivier holds a BA(Econ) Honours from the University of Manchester. He is both a Chartered Accountant (England & Wales) and a CFA Charterholder.

Olivier Ma
Director in Deals at PwC Mauritius
Tel: +230 4045044
Email


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