Written by Fazil Hossenkhan (Managing Partner, Moka, Mauritius) and Nafiisah Jeehoo (Associate), Bowmans
Companies in the capital markets and private equity space are likely to benefit from the coming into force of the Mauritius Securities (Amendment) Act (Amendment Act) on 31 July 2021. This is because securities offering regulations have been significantly relaxed, opening up the market.
Companies operating in this space are no longer required to resort to a locally licensed capital markets intermediary, or to have a foreign fund recognised by the Mauritius regulator, in order to market securities and foreign funds only to ‘sophisticated investors’.
New definition of ‘sophisticated investors’
The definition of ‘sophisticated investor’ itself has been broadened to include a collective investment scheme (CIS), a pension fund or its management company, and a closed-end fund.
Previously, while managers of CISs and closed-end funds were deemed ’sophisticated’, funds under their management were not. This created a dichotomy in as much as these functionaries rarely invested in their own names but tended to rather act on behalf of pooled investment vehicles.
The Amendment Act has also introduced a useful self-certification process where an investor can be deemed to be ‘sophisticated’ if it is able to warrant, at the time of entering into a securities transaction, that:
- its ordinary business or professional activity includes the entering into securities transactions, whether as principal or agent;
- in the case of natural persons, his or her individual net worth or joint net worth with a spouse, exceeds US$1 million or its equivalent in another currency; or
- it is an institution with a minimum amount of US$5 million worth of assets under discretionary management, or its equivalent in another currency.
Introducing the ability to self-certify
Previously, approval of the Financial Services Commission (FSC) would have invariably been required for an investor that did not meet the definition prescribed in the law to be deemed ‘sophisticated’.
The ability to self-certify, which has now been introduced, creates some flexibility in securities transactions and fund raisings.
However, the ability to rely on the investor’s warranties should not mean that there is no need for advisers to the fund or counterparties to the securities transactions, to undertake reasonable due diligence to ensure the veracity of the representations.
This process would call for subscription documents containing the necessary representations and warranties as well as relevant evidence to enable the recipient of the investment to discharge its legal obligations properly.
The introduction of ‘retail investors’
The introduction of the ‘retail investor’ is another novel feature. For the time being, a ‘retail investor’ has been simplistically defined as a category of investors, other than sophisticated investors.
The definition allows for such a category to be further exemplified in the FSC Rules. At the time of writing, no such FSC rules have been issued.
Although the notion itself is not new, ‘retail investors’ have customarily been understood in regulatory practice to be a category of investor who, because of its relatively more vulnerable financial position or limited experience in financial matters, would justify additional protections and more detailed disclosures prior to being solicited to enter into transactions involving securities.
Previously, defining the term was not considered necessary as the rules on securities offerings were generally applicable to all investors. However, with the flexibilities being introduced in relation to ‘sophisticated investors’, it has become necessary to formally introduce the term ‘retail investors’ in legislation so as to preserve the protection for more vulnerable investors.
Other sections of the Securities Act have also been revised to maintain the more rigid licensing or disclosure regime in all marketing activities relating to retail investors. For instance, retail investors may only be approached to enter into securities transactions by or through a licensed investment dealer licence or investment adviser.
Likewise, retail investors can only be offered participation in a foreign domiciled CIS provided it has been recognised by the FSC.
Permitted CIS activities
The Amendment Act has further facilitated the marketing of CISs established in a foreign jurisdiction to sophisticated investors in Mauritius by:
- introducing a definition of ‘Permitted CIS activities’, which is ‘the marketing to a sophisticated investor in Mauritius of units or shares of an entity that carries out the activities of a foreign CIS where such marketing is undertaken (a) by a CIS manager established in Mauritius; (b) by a person carrying out the activities of an investment dealer outside Mauritius; or (c) in accordance with such other provisions as the FSC may determine; and
- dispensing Permitted CIS activities from complying with certain obligations under the Securities Act such as the requirement to prepare and register a prospectus with the FSC and to do periodic disclosure of quarterly and final financial statements.
Effectively, this change means that participation in foreign established CISs may be offered to sophisticated investors in Mauritius either by locally licensed CIS managers or by foreign investment dealers without the need for approvals for recognition or necessarily using a local intermediary. These requirements however still apply to ‘retail investors’.
Other notable changes
Definition of ‘reporting issuer’
The definition of ‘reporting issuer’ has been limited to an issuer who (a) by way of a prospectus, has made an offer of securities either before or after the commencement of the Securities Act; or (b) has made a takeover offer by way of an exchange of securities or similar procedure.
Companies whose securities are simply listed on a securities exchange in Mauritius or have more than 100 shareholders no longer fall under the reporting issuers regime. This means they:
- no longer need to comply with the Securities (Takeover) Rules 2007;
- are not subject to the disclosure obligations under the Securities (Disclosure Obligations of Reporting Issuers) Rules 2007; and
- no longer come under the purview of the offences to insider dealing and other market abuses under the Securities Act.
In introducing this change, it would seem that the legislator wishes to make public offering the real trigger of securities regulations, in a bid to facilitate non-IPO related listings.
It is hoped that this measure will result in Mauritius attracting more listings of foreign issuers and funds where the offerings are not made to the public in Mauritius, and listings of vehicles that make an offer only by private placements or to sophisticated investors.
However, it is somewhat unclear which market abuse provisions would regulate the trading of securities of a listed issuer that did not conduct any public offering.
Introduction of Afrinex Ltd and Afrinex Clearing House Ltd in the Act
The Amendment Act provides for other securities exchanges and clearing and settlement facilities to operate in Mauritius in addition to the Stock Exchange of Mauritius Ltd (SEM) and the Central Depository and Settlement Co. Ltd (CDS).
In November 2018, the FSC licensed Afrinex Ltd, a securities exchange and its subsidiary, Afrinex Clearing House Ltd, a clearing and settlement facility in Mauritius. However, since then, these entities were not subject to any obligations under the Act. Amendments have now been brought by the Amendment Act so that all provisions relating to Securities Exchange and Official Clearing and Settlement Facility set out under the Act are applicable to these licensed entities.
The systematic opening of the Mauritian capital and financial markets appears to be the main driver of the financial sector reform initiated by the Government since announcing its blueprint for the Mauritius International Finance Centre.
Earlier this year, the FSC amended the Securities (Preferential Offer) Rules to carve out foreign entities proposing to make private placements of securities in Mauritius from the scope of regulation.
The recent amendments to the Securities Act track the same policy objectives of further enhancing the competitiveness of Mauritius as a listing jurisdiction by facilitating securities offerings by foreign bodies, while finely balancing the need to protect retail investors.
These reforms align with international best practices and are crucial to position the country amongst leading financial centres.
Importantly, they clearly mark a welcomed evolution from the earlier conservatism and protectionism that pervaded capital market regulation. It is hoped that the same philosophy will pervade the approach to other growth sectors of the economy to help the country along a principled yet pragmatic development path.
For further information or assistance, please contact Nafiisah Jeehoo in Bowmans' Moka (Mauritius) office.« Back to Afri-Spective Blog