This country-specific Q&A provides an overview to private equity laws and regulations that may occur in Mauritius.
This Q&A is part of the global guide to Private Equity. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/private-equity/
What proportion of transactions have involved a financial sponsor as a buyer or seller in the jurisdiction over the last 24 months?
There are no public figures available in Mauritius on this particular point. However, we regularly see financial sponsors involved in private equity transactions and considering the statistics on licensing of funds in Mauritius over the past years, it is expected that the need for financial sponsors will be on the rise in view of the increasing demand for Indian and African assets.
What are the main differences in M&A transaction terms between acquiring a business from a trade seller and financial sponsor backed company in your jurisdiction?
Structures set up in Mauritius tend to be holding structures for the entities operating in other jurisdictions, e.g. in Africa or India. Consequently, acquisitions from trade sellers will be in the form of an interest in the holding company set up in Mauritius. Financial sponsors usually set a new "platform" holding company that serves as the parent for the new target and any operating companies subsequently acquired. The holding company's sole purpose is to hold the securities of the operating company(ies) that are acquired by the financial sponsor. Consequently, at the time of divestment, the financial sponsor will divest either the holding company unless the sale is at the level of one or two operating companies only.
On an acquisition of shares, what is the process for effecting the transfer of the shares and are transfer taxes payable?
Transfer of shares in a Mauritius company is governed by the Companies Act 2001. A share transfer becomes effective upon the relevant entry made in the share register of the company. The entry can be made by the Company upon receipt of a valid instrument of transfer.
The company is required to forthwith file with the Registrar a certified copy of the instrument of transfer.
There is no capital gains tax under the laws of Mauritius and therefore capital gains derived from the sale of shares and other securities are outside the scope of Income Tax. However, income derived from the sale of shares and securities which have been held in the course of business of trading in such instruments represents profits and are taxable except gains derived by companies holding a Category 1 Global Business Licence which are exempt under the law.
Any gains derived from sale of shares and other securities by an individual resident in Mauritius are considered as capital gains and therefore not subject to income tax. Any gains derived by a company resident in Mauritius from sale of shares and other securities held for a period of at least 6 months prior to the sale by the company are considered as tax exempt capital gains. The taxation of gains derived by the company from the sale of shares and other securities held for a period of less than 6 months will depend on the nature of business the company is involved in. Where shares or other securities are held by the company as fixed assets, gains from sale of such assets are treated as capital gains. Any gains derived by a non-resident from sale of securities in Mauritius are treated as not taxable as non-residents from treaty partners do not generally have a permanent establishment in Mauritius to trade in shares in Mauritius. They rather deal in securities from their own country of residence.
How do financial sponsors provide comfort to sellers where the purchasing entity is a special purpose vehicle?
The financial sponsors will often offer stock options to the seller in the special purpose vehicle, thus ensuring a form of partnership which aligns the interest of the seller with that of the financial sponsor and ultimately promotes the smooth running of the operating subsidiaries.
How prevalent is the use of locked box pricing mechanisms in your jurisdiction and in what circumstances are these ordinarily seen?
As indicated above, there is no specific record of such industry related transactions in Mauritius. However, based on fund documentation we have sighted it is not uncommon to use the locked box pricing mechanism. Prices of shares are usually set out in the constitutional documents of a company and it is for the Board to determine the price of the share. As regards collective investment schemes, except for the first public offering, the purchase and redemption price of a share is based on the net asset value whereby the collective investment scheme will use as specific valuation method to value its portfolio securities to arrive at a net asset value.
What are the typical methods and constructs of how risk is allocated between a buyer and seller?
The transaction will often be through a leveraged buy-out using the assets of the target company as collateral to acquire the assets of the company. The buyer will also often want the seller to retain some degree of interest in the company either by having the seller stay at the level of the management of the company or through some form of partnership to ensure the smooth implementation of the buyer’s strategy for the growth of the company.
How prevalent is the use of W&I insurance in your transactions?
We have come across some but not necessarily at the level of our jurisdiction.
How active have financial sponsors been in acquiring publicly listed companies and/or buying infrastructure assets?
There are a certain number of acquisitions of publicly listed companies and/or infrastructure assets by financial sponsors which are structured through Mauritius although we cannot give an indication of their prevalence or not in the absence of statistics.
Outside of anti-trust and heavily regulated sectors, are there any foreign investment controls or other governmental consents which are typically required to be made by financial sponsors?
How is the risk of merger clearance normally dealt with where a financial sponsor is the acquirer?
There are no specific restrictions regarding mergers as contemplated here under Mauritius law.
Have you seen an increase in the number of minority investments undertaken by financial sponsors and are they typically structured as equity investments with certain minority protections or as debt-like investments with rights to participate in the equity upside?
Financial sponsors tend to acquire the majority stake in the M&A transactions which are structured through Mauritius.
How are management incentive schemes typically structured?
They are commonly structured through employee stock options to encourage the management to stay on to carry out the business strategy for expansion of the buyer. Generally those stock options will carry only economic rights.
Are there any specific tax rules which commonly feature in the structuring of management’s incentive schemes?
Under Mauritius law, all the benefits associated with the employment of the employee will be counted in the remuneration and form part of the taxable income.
Are senior managers subject to non-competes and if so what is the general duration?
It is common to have non-competition clauses in the employment contract of senior managers. The usual market practice is 2-3 years.
How does a financial sponsor typically ensure it has control over material business decisions made by the portfolio company and what are the typical documents used to regulate the governance of the portfolio company?
Financial sponsors usually reserve the right, in their capacity as shareholders, to nominate directors on the board of directors of the portfolio company. Under Mauritius law, major transactions, i.e. transactions involving the acquisition or disposition of assets of the company amounting to more than 50% of the value of the assets of the company at the time of the transaction require shareholder approval. The sponsor can also set out in the shareholders agreement, investment agreement or the constitution those matters which are reserved for shareholder prior approval. The constitution of the portfolio company will govern the general management of the company. The shareholders agreement or investment agreement can also set out some of the governance rules as agreed between the parties.
Is it common to use management pooling vehicles where there are a large number of employee shareholders?
It is not common to have structures with large number of employee shareholders in Mauritius. Such schemes are usually restricted to only a few employees.
What are the most commonly used debt finance capital structures across small, medium and large financings?
Debt financing are often carried out through term loans.
Is financial assistance legislation applicable to debt financing arrangements? If so, how is that normally dealt with?
Financial assistance restrictions are applicable solely in connection with the direct or indirect acquisition of the company’s own shares under Mauritius law.
For a typical financing, is there a standard form of credit agreement used which is then negotiated and typically how material is the level of negotiation?
There is no specific form of credit agreement which is used although lines of credit and term loans are often used. Each financing is negotiated individually on the basis of the commercial terms agreed between the parties.
What have been the key areas of negotiation between borrowers and lenders in the last two years?
Negotiations tend to be around questions of financial covenants definitions (e.g., EBITDA, Leverage Ratio, etc.), material adverse changes and other business related terms.