Thu, 10/12/2009 - 12:19
The worldwide financial market's performance over the last 12 months has made some financial institutions and investors wary, but law firm Walkers sees opportunities for offshore finance and private equity structures in Asia.
While there have been shifts in focus by the market, the right offshore strategies can help achieve onshore solutions for investors and institutions, says Walkers.
Over the past five years, there has been significant growth in foreign direct investment in Asia, and particularly in the Peoples' Republic of China. In that time, thousands of companies have been incorporated in the British Virgin Islands and the Cayman Islands to facilitate such investments.
However, due to differences in legal frameworks and financial markets around the world, achieving success for shareholders, investors and creditors can sometimes prove challenging. The dependability of the legal systems in the BVI and the Cayman Islands is often a key factor in the decision to use incorporated companies in one or both of those jurisdictions in Asian corporate structures.
"Arguably, the enforcement of domestic security in Europe and North America is more dependable than domestic security in developing markets," says John Rogers (pictured), head of the finance and corporate team for Walkers' Singapore office. "However, where there is some uncertainty about the enforceability of domestic security, which is sometimes the case in developing Asian markets, offshore security and structuring are integral."
The recent economic downturn has systemically changed financial centres around the world and materially impacted Asian finance. These changes will likely result in changes to financial agreements moving forward.
"Only a few years ago, borrowers had enormous power. Wielding this power to hamstring banks, borrowers were left to essentially structure deals by their own terms. We now have a Brave New World, where power is back in the hands of the lenders who have renewed leverage to increase their collateral and security positions," says Andy Randall, head of the finance and corporate team for Walkers' Hong Kong office. "As creditors and shareholders continue to fight for their rights in financial agreements, this trend could be a game-changer in Asia and around the world."
In the developing Asian markets, Walkers has seen increased use of offshore security packaging, restructuring and the use of offshore insolvency-related remedies as a means to achieving onshore solutions.
"The financial crisis has forced a shift in the offshore markets to focus on rights, remedies and enforcement options for creditors and shareholders, financial and corporate restructuring, and the resolution of shareholder and investor disputes," says Randall. "In addition, many hedge funds have been looking at restructuring to survive lower returns, liquidity concerns and other market challenges. This shift has created opportunities for implementing solutions that combine onshore and offshore elements."
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