Global Business Magazine - July 2012

TRIP ADVISOR’S HOTELS FOR GROWN UPS

LUXURY BRAND SERIES BEACH RESORTS

gbm July 2012

global business magazine

London 2012

Heroism or Hubris?

MINING, MINERALS & NATURAL RESOURCES

BERMUDA FOCUS

SPOTLIGHT ON CYPRUS

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Image: London 2012

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The London Stock Exchange’s Primary Markets team put UK and international companies in touch with one of the world’s deepest pools of global capital. Our markets are home to companies from all over the world, ranging from start-ups to some of the world’s largest corporations.

For further information, visit www.londonstockexchangegroup.com

INSIDE This Month: Image: London 2012

MINING MINERALS & NATURAL RESOURCES

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SPOTLIGHT ON MALAYSIA

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Business Talk As London takes to the world stage this month to host the Olympics, we look at how the country is using sport as a catalyst for physical, social and economic change. Can a sporting event like this really leave behind a lasting legacy for generations to come?

From one prominent island to another, we gain insider perspectives on the current economic climate in Bermuda – how investors are now turning to insurance linked securities (‘ILS’), the impact of policies and legislations on the international business sector, and the work of the Bermuda Chamber of Commerce. We also head to Cyprus to find out about one of the five authorities supervising the financial sector, the republic’s prominent role in international shipping, and how the licensing process is regulated in the investment industry.

Focusing on Malaysia, we examine their new competition law and tackle the issues that can arise from collaborations in the airline industry.

Our Alternative Finance for Businesses focus highlights the growing popularity of asset based finance as a key alternative to traditional lending, while Strategic Alliances looks at how alliance managers help companies successfully make that all important decision – build, buy, or partner?

Corporate Recovery and Insolvency considers the role of Insolvency Practitioners and whether business failures are simply part of a healthy entrepreneurial economy.

As we continue to seek a global perspective on sustainability, our Mining, Minerals and Natural Resources focus looks at the changes in Chile’s environmental regulations, the challenges presented by resource nationalism for private companies, and the investment potential of mining in Nigeria.

We also find out more about the role of the World Energy Council, and the challenges and risks faced in growing the mining industry responsibly.

With the subject of mining featuring so prominently, it seems fitting to profile London’s richest resident, Lakshmi Mittal, who just happens to own the world’s largest steelmaking company.

From tapping into natural resources to making the most of them, this month we’re all about providing an alternative to watching – or competing in – sport. That’s why our Luxury Brand Series is heading to the beach. Here’s to switching off.

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COVER STORY

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BP LONDON 2012 PARTNERSHIP

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SUCCESS STORY - LAKSHMI MITTAL

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LONDONS FINEST - THE HALKIN

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TRIP ADVISOR

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LUXURY BRAND SERIES - BEACH RESORTS

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BERMUDA FOCUS

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SPOTLIGHT ON CYPRUS

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STRATEGIC ALLIANCES & VENTURE AGREEMENTS

58

THE BUSINESS CASE FOR SUSTAINABLE FINANCE

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DEAL DIRECTORY

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CORPORATE RECOVERY & INSOLVENCY

The opinions expressed in GBM do not necessarily reflect those of the editors, publishers or their agents. The information provided in GBM is general and may not be applied to a specific situation. GBM does not purport to provide legal or other professional advice and takes no responsibility for actions taken on the basis of information provided herein. Legal advice should always be sought before taking any such action. Laws and government policies are constantly changing and accordingly GBM takes no responsibility for the accuracy or currency of the information provided herein. If you require particular information you are advised to consult with the article’s author or seek legal advice.

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ASSET BASED LENDING

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LONDON 2012 - HEROISM OR HUBRIS

Image: London 2012

LONDON 2012

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wasn't there, it could be argued that the demand was in effect removed by LOCOG [which released] a further 600,000 hotel room nights which were previously set aside for officials and the media,” he said.

Homestay and short term rental companies are still trying to move their stock of properties for the period of the Games. Accommodation has been heavily discounted. For example, a garden flat in Chelsea that sleeps four is available for less than £170 per night – far from the £5,000-a-week rents that some Londoners were expecting to make.

HEROISM OR HUBRIS? Since the modern Olympic Games were founded in 1896, many cities have discovered that the honour of hosting them can bring mixed blessings. Nevertheless, London put in a strong bid for the 2012 summer Olympics.

It was a close-run race, with London beating Paris by only 54 votes to 50. The promise of regeneration for one of the most impoverished parts of east London, and the involvement of former Olympic athlete Lord Sebastian Coe, swung the jury in London’s favour.

Although the budget has more than quadrupled since the initial bid, the London Organising Committee of the Olympic and Paralympic Games (LOCOG), is justifiably proud of their smooth implementation of the London games. The public cost of the games is £9bn, ten percent of which has come directly from Londoners. A further £1bn has come from sponsors.

But has it been money well spent?

Visit London… Please?

While received wisdom says that the Olympics are great news for tourism, the latest market figures show that 2012 will be little better than 2011. David Edwards, head of research and forecasting at VisitBritain, estimates that there will be around 31 million visitors to Britain in 2012, and that overall visitor spending will be around £18 billion – both figures that are unchanged from 2011. Mr Edwards blamed a worldwide lack of consumer confidence for the static numbers. "Without the Games, it would be a much more challenging year," he said.

Londoners who had hoped to make a quick profit from the games by renting out their property have been disappointed. Liam Bailey, Head of Residential Research at Knight Frank estate agents, told World Property Channel that rental values in London were continuing to fall despite the Olympic summer.

"Reports that prime rental accommodation in London could be in short supply due to this summer's Olympic Games have clearly not yet been borne out. While this could be because the high demand for short lets simply

Although VisitBritain is hopeful that the Olympics will be a “summer-long advert for London”, the experience of previous Olympic hosts suggests that tourism often slumps after an Olympic Games. Take the example of Sydney, where tourism fell sharply after the 2000 summer Olympics and didn’t begin to reach previous levels until 2009. While the Olympics may be propping up the London tourism industry in a year of shaky consumer confidence, there is little guarantee that there will be any lasting positive impact.

In a 2007 study of major sporting events, economists Harry Solberg of Sør-Trøndelag University College and Holger Preuss of Johannes Gutenberg University found that: “A growth in the number of tourists [for a sporting event] does not indicate whether growth was caused by a positive shift in demand, supply, or both. Indeed, a positive shift in supply with no corresponding shift in demand can make sport events unprofitable for the host destination, particularly the tourism industry.” With hotel occupancy rates at just 85 percent this summer and few signs of a sustainable increase in tourism to London, new entrants to the accommodation market are likely to be disappointed with their long-term prospects.

Is your Journey Really Necessary?

While the Olympics won’t bring unprecedented numbers of tourists to London, it will significantly increase the strain on the transport infrastructure as athletes, sponsors and spectators travel between venues. For months, Transport for London (TfL) has been encouraging commuters and residents to stay at home during the Games.

The Canary Wharf area of London - home to the UK headquarters of some of the largest financial institutions in the world including HSBC, Citigroup and Morgan Stanley - is likely to be severely affected by the Games. TfL forecasts that Canary Wharf station will be a major “pinch point” during the games as it lies between the main Olympic venue in Stratford and the equestrian and gymnastics venues in Greenwich.

Several firms are encouraging their staff to work remotely if possible, with HSBC predicting that 30 % of their 8,500 employees may choose to work at home. But TfL needs at least 30 % of the 100,000 commuters that use the station every day to stay at home if the system is to keep moving.

Local demand for bus, car and taxi journeys must also fall by 30 % during the Olympics to prevent gridlock.

Road traffic in London will increase sharply from the beginning of July as 80,000 athletes, sponsors, IOC officials and media organisations descend on the city.

To ensure that officials, athletes and sponsors can get around the capital, TfL has drawn up an Olympic July 2012 • Global Business Magazine • 5

LONDON 2012 - HEROISM OR HUBRIS

Route Network (ORN). Costing £70m to implement, the ORN closes major roads to all non-Olympic traffic between 6am and midnight throughout the Games. Two thousand people are involved in marking the changes to the road network, and a team of enforcement personnel will be responsible for keeping the network clear during the games.

“Our strong advice is to avoid driving in central London, around the ORN, and around venues,” said Garrett Emmerson, TfL’s head of surface transport.

The Impact on Business For the sponsors of the Olympics, the benefits are already apparent as they capitalise on their exclusive rights to publicly promote their involvement with the Games.

Atkins, the engineering consultancy that helped to design the London games, is using its status as a “London Olympics Official Supplier or Provider” to win business from Asia and the Middle East. It has just won a contract to advise the Qatari Government on its plans for the 2022 World Cup. Atkins chief executive, Uwe Kruger, told the Financial Times, “We delivered the Olympics under budget and ahead of time; we are seeking to utilise the experience from that terrific opportunity in Asia and elsewhere in the world.” The company plans to increase the value its overseas operations from 55 to 75% of its total sales revenue in the next three years on the back of its Olympic involvement.

Procter and Gamble (P&G) are using their sponsorship to build international recognition for its corporate brand, as well as the many individual personal care brands that it holds.

Nathan Homer, P&G's UK and Ireland Olympic Projects Director, told the BBC that the main driver behind their sponsorship deal, “is to build the business. Anyone who does a partnership deal and says it is not to build their business, then you wonder what they are doing it for." P&G expect to make $500m in additional sales worldwide revenue this year on the back of its Olympic involvement.

P&G is also using the opportunity to build 6 • Global Business Magazine • July 2012

its reputation for corporate and social responsibility by sponsoring the Mayor of London's “Capital Clean Up” campaign and running a sports coaching programme under the Gillette brand.

Payment partner Visa is pursuing an aggressive policy of exclusivity. Visa came under fire for insisting that all online purchases of Games tickets be made using Visa cards. It has also removed 27 ATMs from the Olympics venues and replaced them with just eight Visa-only cash machines.

Visa insists that the exclusivity clauses in its sponsorship agreement allow them to ban the use of other cards in the Olympic areas.

The stringent rules drawn up by the IOC to protect sponsors are drawing criticism from the many other businesses that are involved with the games. All non-sponsor businesses that won contracts to work on the 2012 Olympics were compelled to sign a “no marketing rights” protocol which prevents them from even mentioning their links to the events in advertising and press releases.

Tom Foulkes, head of marketing for the London-based engineering and construction group, Arup, said they were prevented from disclosing the projects that they had delivered at the Olympic Park because of the protocol.

Adam Marshall, director of policy at the British Chambers of Commerce, said that that suppliers have been unable to create games-related job titles and are restricted to mentioning Olympic bodies only in materials that list at least nine other clients. He went on to point out that some of the protocol’s restrictions would remain in place even after the games.

Pierre Williams, spokesman for the Federation of Small Businesses, said, “In its almost paranoid attempts to protect the Olympic brand and its corporate sponsors, it has largely destroyed the goodwill that was there for the taking from (non-sponsor) businesses supplying the games.”

While sponsors are happy with their involvement in the games, there are few signs that the “Games Dividend” is trickling down to local businesses and communities.

East London has one of the highest rates of deprivation not only in London but in the country as a whole. While the Games have created some jobs for Londoners, there is much local bitterness that the jobs created have not been as numerous, nor as high quality, as many had hoped. Meg Hiller, the Member of Parliament for east-London borough Hackney, said that the Games hadn’t delivered sustainable employment and skills. “It’s not just one-off little jobs that people want and need, it’s the long term jobs that are important,” she said.

The organiser of the Games, LOCOG announced that in total some 12,000 temporary jobs in security, retail, catering and cleaning had been created, but many more roles are being filled by 70,000 unpaid volunteers. The positions advertised by security firm G4S were oversubscribed ten times within days of the adverts being posted. Meanwhile the latest unemployment figures show that over 426,000 Londoners are unemployed and the host borough, Newham, has a 15 % unemployment rate – the second highest in Britain.

The Olympic Legacy “The best Olympics regenerate neglected districts, inspire children to take up sport and leave a city furnished with world-class venues and rolling in Olympic dollars – Barcelona is a good example of this. The worst are poisoned chalices that leave a nation in debt and a city overrun by white elephants – look no further than Athens,” wrote Simon Usborne in the Independent as the Beijing Olympics drew to a close.

The districts where the Olympics are being hosted are among some of the most neglected districts in Britain, with childhood poverty and unemployment endemic throughout east London. But so far the number of jobs created has been small, the impact on tourism has been disappointing, and local and national businesses have been hampered in their efforts to build international trade based on their Olympic involvement.

The sporting legacy has also been called into question: sports facilities across London are closing as councils bear the costs of the Olympics, and the organisers have insisted

Image: London 2012

that the walking and cycling routes that link the centre of the city to the Olympic districts must be closed for the duration of the games. Local resident Gerhard Weiss told the London Cycling Campaign, "It makes absolutely no sense to invest in a walking and cycling route to the Olympic Park and then ban walkers and cyclists at the time when it’s likely to be most popular."

Whilst the Games themselves have not delivered demonstrable benefits to the people and businesses of east London, perhaps the infrastructure, quality housing, and skills and experience that will remain after the games will deliver a lasting improvement to the prospects of this deprived corner of London.

That will require a commitment on the part of the organisers, to tend to the legacy of the games in the months and years to come.

Poor legacy planning can lead to a disastrous aftermath to the games, as the experience of recent hosts has shown. “While many factors are behind the crippling debt crisis, the 2004 Summer Olympics in Athens has drawn particular attention,” Greek journalist Derek Gatopoulos told the Huffington Post in June. “If not the sole reason for this nation's financial mess, some point to the games as at least an illustration of what's gone wrong in Greece.”

Sydney also struggled for ten years to turn its Olympic park into a thriving suburb. Barry O'Farrell, the Premier of New South Wales and former Minister for Western Sydney , said, "Because of a failure to capitalise on the legacy you don't have to go very far to get an argument from people that…whilst it was a great two weeks in Sydney's life it hasn't actually delivered much extra to the city."

Michael Knight, who chaired the Sydney Organising Committee, warns: "The team I led, we were so obsessed with getting the Games right we didn't have a lot of time to think about the afterwards. If we had our time over again we'd probably have a second team on that from the beginning."

While they have successfully delivered the summer Games, when it comes to creating a positive legacy for the people and businesses of east London the organising committee still has plenty to do.

July 2012 • Global Business Magazine • 7

BP LONDON 2012 PARTNERSHIP

BP London 2012 Partnership BP is proud to be an Official Partner of the London 2012 Olympic and Paralympic Games From 27 July to 9 September 2012, London will host the Olympic Games and Paralympic Games and BP will play a central role throughout.

As a London-based company for over 100 years, BP is proud to be a partner and supporter of London 2012.

For the past four years, BP has been deeply committed to the London 2012 Games, helping to deliver them successfully and responsibly. And for BP, leaving a positive legacy when the Games are over is just as important as the preparations.

BP is dedicated to fuelling the success of London 2012 and we are contributing in many tangible ways: • As the Official Oil and Gas Partner, we are providing advanced fuels and engine oils for the 5000 official Games vehicles, demonstrating the mix of existing and emerging technologies that represent the best mobility energy solutions for the next 10 to 15 years.

• As a Sustainability Partner and the Official Carbon Offset Partner with Target Neutral, we are offsetting the carbon footprint of many national teams including Team GB, Paralympics GB and Team USA. We are also offering to offset for free the carbon emissions of all spectator journeys to the Games, aiming to set a world record.

• BP is supporting athletes in their preparation while bringing the Games to millions of people through its forecourts. BP is partnering with the National Olympic and National Paralympic Committees of nine countries, supporting over 60 elite athletes in their preparations.

• BP is also supporting a host of programmes in our role as Premier Partner of the Cultural Olympiad and London 2012 Festival. Building on its 30-year support of arts and culture in the UK, BP is helping to involve millions of people in London 2012. Furthermore, the BP-supported Young Leaders Programme has given 100 young people the chance to make a positive difference to their lives and communities, through coaching and personal development.

As the Official Oil and Gas Partner for London 2012, BP will provide advanced fuels and engine oils for over 5,000 official vehicles, fuel for generators and the liquefied petroleum gas (LPG) for the Games’ catering needs.

• BP’s London 2012 vision is to use the power of the Games to inspire progress and to provide real solutions for a lower-carbon future. Showcasing a mix of existing and emerging technologies and practices for fuels and mobility, BP will demonstrate the most efficient and progressive solutions for today and the next 10-15 years.

• The Games fleet will be fuelled with BP Ultimate – fuels that demonstrate outstanding improvements in engine cleanliness and protection, driving better efficiency and emissions. They will also be supplied with Castrol’s leading range of lubricants, including the latest advanced diesel engine lubricant for BMW - Edge - which is protecting engines, enhancing fuel and emissions efficiency and driving down the costs of fleet operation.

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• BP will demonstrate the huge potential of advanced biofuels.

We will be announcing more information about the biofuels at a later date.

• BP will ‘showcase’ in the Olympic Park – and in our wider London 2012 partnership programme - the many practical and progressive steps that BP and our partners are taking to transform the efficiency of mobility – and how individuals can play their part.

As a Sustainability Partner and the Official Carbon Offset Partner with Target Neutral, BP will play a key role in helping to deliver a lower-carbon Games.

• BP runs a major not for profit programme aimed at encouraging individuals to reduce, replace or neutralise (offset) their carbon emissions from travel via BP Target Neutral. BP will also create an offset offer for all ticketed spectators helping them to reduce and offset their emissions from travelling to the Games. www. bptargetneutral.com As a Premier Partner of the Cultural Olympiad and London 2012 Festival, BP will continue its ongoing commitment to UK arts and culture. BP is working with LOCOG and its arts and cultural partners to help deliver several programmes that will inspire young people and will encourage the UK to get involved with London 2012: • London 2012 Open Weekend supported by BP: Open Weekend is an annual highlight of the Cultural Olympiad and an opportunity for the UK to actively mark the countdown to the London 2012 Games at arts, cultural and sporting events across the UK. Open Weekend 2011 (22-24 July) involved over a thousand events and a million participants in celebration of one year to go. http://www.london2012.com/get-involved/openweekend/ • Tate Movie Project: BP is supporting the Tate Movie Project, with Legacy Trust UK and the BBC. The Tate Movie Project is the first of its kind; an animated film made by and for children across the UK. With the talents of Aardman Animations, the project hopes to involve over a million 5 – 13 year olds. The finished film, “The Itch of the Golden Nit” was screened in Trafalgar Square on 23 July 2011 and at Vue cinemas across the UK in August. http://www.tatemovie.co.uk • The Olympic Journey: The Story of the Games: A BP collaboration with the Royal Opera House and The Olympic Museum in Lausanne. The exhibition will be created and staged at the Royal Opera House for the duration of the Olympic Games next summer from 27 July to 12 August 2012. It will include unique artefacts, graphics, film and audio from The

Olympic Museum in Lausanne being shown in London for the very first time, and promises to be a highlight of the London 2012 Festival, the finale of the Cultural Olympiad. http://www. bp.com/genericarticle.do?categoryId=2012968&contentId=706886 0 • BP Portrait Award: Next Generation: The Next Generation programme is focused on giving young people aged 14-19 free opportunities to learn about portraiture under the tutelage of previous BP Portrait Award winners. In 2011 and 2012 the programme will expand beyond the capital, with Summer Schools taking place at venues across the UK. An interactive website is also being developed, with behind-the-scenes insights in to the BP Portrait Award exhibition as well as interviews with artists and a look at the judging process. http://www.npg.org. uk/whatson/exhibitions/bp-portrait-award-2010/bp-portraitaward-next-generation3.php • Shakespeare's theatre of the world: In the run-up to next year’s Games, the British Museum will present The BP exhibition ‘Shakespeare’s theatre of the world’. This major exhibition will provide a unique insight into the emerging role of London as a world city in 1612, as seen through the eyes of Shakespeare. Objects, quotes and performance will bring Shakespeare’s London to life; exhibits include jewels, paintings, maps and one of the few surviving first folios of Shakespeare’s plays. www.britishmuseum.org BP is supporting the Young Leaders Programme. In bidding for the 2012 Games, London 2012 made a commitment to deliver a project to support 100 young people on an intensive personal development programme. The aim was for them to play a significant role in the delivery of the London 2012 Olympic and Paralympic Games. The London 2012 Young Leaders Programme (YLP), supported by BP, is designed to give a group of disadvantaged young people the chance to make positive change to their lives. This will be achieved by participation in a number of remarkable volunteering opportunities

between April 2010 and the end of the Games in September 2012. http://www.london2012.com/youngleaders BP is also inspiring young people through the Enterprise Trading Game and Roadshow. The Game is a work-related learning game that offers students the opportunity to put enterprise, maths and business skills into action through an exciting simulation of real-life oil trading. The Roadshow is a one-day schools roadshow focusing on maths and enterprise, delivered in all areas of the UK by the time of the Olympic Games in 2012. http://www.bp.com/sectiongenericarticle. do?categoryId=9036379&contentId=7067216 BP is supporting 6 outstanding British athletes as they prepare for the London 2012 Olympic and Paralympic Games: Jessica Ennis; Lizzie Amitstead; Shelly Woods; Richard Whitehead; Stef Reid and William Sharman. BP will be helping them to reduce their carbon footprint as they prepare for the Games using the Target Neutral framework of Reduce-Replace-Neutralise. To find out more about BP’s athletes, go to www.bp.com/london2012.

Our London 2012 partnership will allow us to excite and incentivise our business partners and customers through innovative, distinctive offers and experiences, which are creating value for BP and our partners. An example is the Legends Collection, which will help BP to raise valuable funds for the British Olympic and Paralympic Associations.

The Olympic Games are the ultimate demonstration of human sporting endeavour, bringing together extraordinary athletes from around the world. We believe that the athletes and the Olympic movement embody the values that we wish to see demonstrated in BP – safety, excellence, respect and courage. We also believe that success comes from working as one team – the athletes will be supported by the energy of a number of people who will help them to achieve their best.

For more information on BP’s London 2012 activities, go to www.bp.com/2012

July 2012 • Global Business Magazine • 9

SUCCESS STORIES - LAKSHMI MITTAL

SUCCESS STORIES Lakshmi Mittal: A Rich Life Sometimes, believe it or not, nice guys don’t finish last. Lakshmi Narayan Mittal is a case in point, as he has broken the mold of the overambitious entrepreneur and replaced it with an inspiring combination of business savvy, philanthropy and individualism. The end result, at least in financial terms, is a personal net worth of $20.7 billion. More importantly, however, is the fact that he did it without sacrificing his integrity or victimizing others. From his formative years in India to his current prosperity in London, Lakshmi Mittal has exemplified the spirit of the modern entrepreneur.

Lakshmi Narayan Mittal was born in the Churu district of Rajasthan, India, on June 15, 1950, and soon moved with his family to Calcutta. That was where he first learned about business from his father, Mohan Lal Mittal, who was busy building a steel business while young Mittal excelled at business and accountancy at St. Xavier’s College in Calcutta. After graduation, Mittal worked for the family firm for a while, and then struck out on his own in 1976 when he founded a steel plant in Indonesia. Calling his steel company Arcelor Mittal, he ran this business successfully throughout the 1980s, and in 1995 Mittal made a full separation of his own steel business from the family’s corporate holdings in India. Soon afterward, Mittal settled in London, where he still resides to this day.

Throughout this saga of independence, Mittal has made his mark on the world steel industry. Now known simply as Mittal Steel, his company currently has operations in 14 countries around the world. At one point in 2007, Mittal was the fifth richest person in the world, and at the time of this writing, he is the sixth richest person. Some have even compared Mittal to Andrew Carnegie. This is an apt comparison; after all, Carnegie was a steel magnate who created his own wealth.

Carnegie and Mittal were both accountants with global visions and practically endless determination to succeed. Furthermore, both men overcame obstacles and prevailed in consolidating the extensively divided steel industry. At 61 years of age, Mittal could certainly be considered the Andrew Carnegie of the new millennium.

The comparison with Carnegie, need not end there, however. While Andrew Carnegie was well known as a philanthropist, Mittal has also held his own in this regard. Consider, for example, how Mittal reacted after India, 10 • Global Business Magazine • July 2012

his birthplace, fared poorly at the 1996, 2000, and 2004 Summer Olympic Games. Rather than stand at the sidelines and grumble, Mittal characteristically took action. In reaction to the poor Olympic showing, Mittal set up what became known as the Mittal Champions Trust. In this trust Mittal placed $9 million of his own personal assets with the objective of financially supporting ten Indian athletes, each of whom displayed winning potential. Mittal’s hope, which is equally India’s hope, is that these athletes will excel in the 2012 Olympic Games, which are slated to be held in London, where Mittal himself resides. Sports including boxing, swimming, archery, squash, and badminton will be supported through the Mittal Champions Trust. Currently, this trust supports 40 athletes and has plans to develop training facilities in India.

The Mittal Champions Trust has not been Mittal’s only charitable cause. In 2002, Mittal contributed to the LNM Institute of Information Technology, a nonprofit institute of higher learning located in Jaipur, India.

Furthermore, in 2007, on the BBC television program The Apprentice, Mittal donated £1 million to the charitable organization Comic Relief.

While Mittal has excelled as a philanthropist, he has also established a number of milestones as a world-renowned entrepreneur. Consider, for example, the fact that Mittal Steel is three times the size of its nearest competitor. His personal wealth outweighs that of anyone else in England, and Forbes has declared him the 55th most powerful person. The wedding of his daughter, Vanisha, was the second most expensive wedding in recorded history.

In addition, Mittal owns 34 percent of the London-based Queens Park Rangers Football

Club football team. This team has performed quite well, winning the 2010-2011 Football League Championship.

Mittal has embodied the life of a winner, even in his personal life. His estate in Kensington Palace Gardens, which was purchased in 2004 for the sum of £57 million (approximately US $128 million), was the world’s most expensive home at that time. Mittal owns, in total, three properties worth £500 million

in the posh region of London known as the “Billionaire’s Row” at Kensington Palace Gardens. The Mittal family lives luxuriously, all due to this one individual’s dream of expanding his steel business from a contender into an empire.

We can all be inspired by what Mittal has accomplished in his lifetime. The man was not born with a dominating steel empire, but he forged one from the raw materials of

persistence and ingenuity. As a result, Mittal has earned a great number of prestigious awards. Among these awards are the 2008 Forbes Lifetime Achievement Award from Forbes magazine; the 2007 Grand Cross of Civil Merit from the government of Spain; 2004 Entrepreneur of the Year from the Wall Street Journal; the 2007 Dwight D. Eisenhower Global Leadership Award from the Business Council for International Understanding; and the 2008 Padma Vibushan, which is the

second highest civilian award given in the Republic of India.

Even with all of this, the story of Lakshmi Narayan Mittal is not yet finished. If Mittal’s past accomplishments are any indication of what the future holds, then clearly we can expect more great things from this man. In every sense of the word, Lakshmi Mittal continues to show us what it means to live a rich life.

July 2012 • Global Business Magazine • 11

London’s

finest

LONDON’S FINEST - THE HALKIN

THE HALKIN When The Halkin first opened in 1991, it was thought to be the first design-led boutique hotel in Europe, providing a perfect balance of service and style. 20 years on, the hotel has become the benchmark for contemporary hotels around the world.

Conceived and created by Christina Ong, The Halkin is internationally regarded as one of London’s most sought-after address. Nestled in a quiet residential street in London’s exclusive Belgravia, the hotel provides a home away from home with luxurious guest rooms, Asian style service and fabulous dining at the hotel’s award-winning Thai restaurant, nahm.

With its fantastic location close to Hyde Park Corner, the luxury shops of Knightsbridge and Mayfair, The Halkin allows guests to easily immerge into London’s rich culture.

The Halkin is a purpose-built hotel – but the property’s Georgian-styled façade 12 • Global Business Magazine • July 2012

of weathered bricks, Portland stone and arching windows gives little away, blending seamlessly into its Belgravia surroundings.

Once, inside, the supremely contemporary and innovative design of Italian architects, Laboratorio Associati of Milan, has created a hotel where every detail is tailored for the sophisticated traveller.

The concept at the heart of the hotel’s design was the ‘Expansion of Space’, a sensation which can be experienced throughout The Halkin. Above the light and airy lobby soars an atrium ceiling decorated with a mural ‘skyscape’, created by the Italian painter Valentino Vago. The lobby is open-plan in design and flows seamlessly into the hotel’s

bar on the left and reception on the right, while ahead is the entrance to nahm. nahm is the acclaimed restaurant from celebrated Australian chef David Thompson. nahm opened in July 2001 and serves innovative Thai cuisine. The restaurant is light and airy with arched windows, wooden slatted screens, red and gold walls and wellspaced seating.

There are just 41 guest rooms and suites at The Halkin, all generously proportioned and individually designed and decorated. These are reached from a striking corridor of black, corrugated-wood panelling which flows in a powerfully sculptural curve on each level. All

rooms are furnished to superlative standards in an uncluttered and elegant style which uses pale cream fabrics and warm Pomelé Sapele veneers. Exceptionally comfortable beds are fitted with Egyptian cotton sheets and sumptuous goose down pillows.

A 49sq metre gym offers the latest in Life Fitness exercise equipment including two treadmills, a cross trainer, two exercise bikes, various hand weights, a bench and stretching area. Guests have also the opportunity to enjoy in-room COMO Shambhala spa treatments or to use the facilities of the Metropolitan London, a short five minute walk away.

CONTACT

Many rooms have separate seating and dressing areas, and all offer luxurious marble bathrooms with deep tubs, separate walk-in showers, anti-mist mirrors and plentiful COMO Shambhala amenities, exclusive to COMO Hotels and Resorts. Suites on the fifth floor feature stunning, high curved ceilings that follow the arch of the barrel-vaulted roof, and large dormer windows allow light to flood in.

The Halkin Halkin Street London SW1X 7DJ Website: halkin.como.bz

Direct Reservations: Tel: +44 (0) 20 7333 1059 Fax: +44 (0) 20 7333 1100 US Toll Free: 1 888 HALKINH Email: res@halkin.como.bz

July 2012 • Global Business Magazine • 13

MINING, MINERALS & NATURAL RESOURCES

Mining, Minerals & Natural Resources Mining’s Contribution to Sustainable Development The extraction and processing of minerals to provide services important to human society has gone on for millennia. The resulting metals and minerals play a vast, essential and evolving role in today’s society, a role that will continue far into the future, inevitably expanding to include usages that are not currently understood.

However, in some communities and regions, the environmental and social legacy of mining and metals manufacturing is far from positive. In the early 1990s, concerns linked to this observation led some to question whether in certain circumstances the presence of a mineral endowment was a kind of ‘resource curse.’ We now know that this does not need to be the case. If managed responsibly and effectively, mining and metals manufacturing can and will provide a foundation for achieving the kind of life that different cultures seek.

But what does this ‘managed responsibly and effectively’ really mean? Minerals and metals are a critical part of developing a modern society – providing essential products, wealth, jobs and opportunity. But in some countries these resources have been misused and squandered, fuelling conflict and political unrest. There have been disputes over land use, property rights, environmental damage, transparency of revenues and a growing debate about the distribution of the spoils.

At the same time, demands for a ‘green’ and/or ‘low-carbon economy’ are growing.

Critically, the millennium development goal of reducing poverty must be met. In reality, for humankind to walk more lightly on the

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earth and to achieve the poverty reduction that is needed across the world, we need evolution that is marked by innovation, creativity and sensitivity. These needed approaches are not possible without mined metals and minerals.

The International Council on Mining and Metals (ICMM) was formed in 2001 to catalyse change and enhance the contribution of mining, minerals and metals to sustainable development. Our 22 member companies employ close to one million of the 2.5 million people working in the mining and metals sector worldwide. These companies have some 800 operations in 62 countries and produce many of the world’s commodities – 38% of the gold, 30% iron ore, 37% platinum and 34% nickel (World Mineral Production 2004-2008, British Geological Survey 2010).

These operations place our members on the front line in dealing with the many complex environmental and social issues apparent today.

Mine projects follow a life cycle that starts with exploration and proceeds through construction, operation, closure and postclosure. Something that is little understood is that across this full life cycle, a 20 to 30 year operating mine can involve five to seven generations of ‘relationship’ between

industry and host community at a given location. The ‘seven generation’ perspective of many indigenous peoples has thus a practical and direct application to mining and metals operations.

In following a path that is ‘responsible and effective,’ an approach is called for that is built on a full understanding and explicit recognition of all benefits, costs, risks and responsibilities that accrue to all parties that are affected. This is a tough challenge and inevitably entails collaboration to ensure that an equitable distribution of these is achieved.

Each one of these benefits, costs, risks and responsibilities is complex when viewed from the perspectives of different interests, but all must be considered.

For example, from a country-level macroeconomic perspective, the generation of foreign direct investment, foreign exchange, and government revenues are all very important. At the local level, however, it is the direct benefits of jobs, infrastructure and community services that become critical to consider. It is here that a community’s confidence can be enhanced in achieving the future that it wants for itself.

When developing a mine, companies risk the capital of their investors to create the project and ultimately generate a return. However, communities too face risk in terms of the effect mining has on their way of life over the long-term.

More importantly, if we are to ensure that the needed balance of benefits, costs and risks is achieved, all parties – government, company and community – carry certain responsibilities that must be clearly assigned and resourced. This is to ensure that accountabilities maintained and learnings drawn out lead to long-term performance refinement and improvement.

opportunity for a positive contribution over the long run.

Importantly, within the mining and metals industry there is a key role for collaboration as well. Mines often occur in clusters and when they do, collaboration between companies to address service and infrastructure needs of projects and communities alike is critical if the possible efficiencies are to be achieved – not only for the mine projects but also for the region and not only for the time of operating mine but also for long after. Small players in the industry are nimble, agile and fast movers.

Large companies have the resources and the technical skills. There is an opportunity to value and benefit from each other’s skills and strengths. Seen in this way, the mining and metals industry is a complex, interdependent web of players.

that the ecosystem after you have finished is just as nimble and just as capable of reproducing, they will accept that challenge and find a solution. If you do not ask them, they will not do it. It is our own creativity that makes this possible.

You may ask: what is the value of mining to your country – can it be a bridge to a better future? Our answer is yes, if the process is done responsibly and effectively. Learning our way forward to being more responsible and effective thereby strengthening our contribution to sustainable development, is the task before ICMM, its members and the industry as a whole.

Aristotle said it is not always the same thing to be a good man and a good citizen. We need to become better at communicating what the real contribution of the mining and metals industry is – how we can redefine this contribution, make it stronger and ensure it is better understood across the world. Open and transparent decision-making will enhance trust and respect. A full and open treatment of strengths and limitations is also essential, as is listening and hearing others’ concerns.

If you ask engineers to design something so

The industry has made significant progress in the last 20 years, but there is much yet to do. The long-term nature of mining provides an opportunity to be a partner with communities over multiple generations.

If the activities are designed and implemented in a way that reflects the overlap in values of all the parties – government, company and community – there is a tremendous

International Council on Mining and Metals (ICMM) 35/38 Portman Square London W1H 6LR United Kingdom

Switchboard: +44 (0) 20 7467 5070 Main Fax: +44 (0) 20 7467 5071 info@icmm.com

July 2012 • Global Business Magazine • 15

MINING, MINERALS & NATURAL RESOURCES

Elena Nekhaev, Director of Programmes, World Energy Council World Energy Council 5th Floor - Regency House 1-4 Warwick Street London W1B 5LT United Kingdom Tel: (+44 20) 7734 5996 Fax: (+44 20) 7734 5926 info@worldenergy.org www.worldenergy.org

The World Energy Council – Energy Today and Tomorrow Today, at least 1.5 billion people in the world (more than a quarter of the world’s population) do not have access to modern energy services. To highlight this fact, the United Nations has declared 2012 the ‘Year of Sustainable Energy for All’.

Any strategic decision requires due diligence and hard data. This is particularly true in the energy sector, given long lead times that can often span decades. It is also in this sector where there are huge and untapped opportunities – an example of this being that according to the Organisation for Economic Co-operation and Development (OECD), while US$28 trillion is held in pension funds, only 1% is invested in energy infrastructure.

Since 1934, the World Energy Council (the ‘WEC’) has been producing the Survey of Energy Resources, a unique and authoritative reference publication. Published every three years and released at the World Energy Congress, the survey provides a wealth of data and information for 15 energy resources. The findings from the 2010 survey have set the scene for businesses, investors and policymakers on which to base their decisions.

The Broad Picture – Energy Demand Rises, Fossil Fuels Dominate Before looking into the future of the energy sector, it might be useful to look back at the history over the past decade. World population has grown by 12% and today over 60% of all people live in Asia. Primary energy consumption has grown by 20% and electricity by more than 30% over the past decade, while the oil price has fluctuated from 10 to nearly 150 dollars per barrel.

Fossil fuels are dominating the global energy mix and will continue to act as the backbone of energy supply for decades to come. All energy resources have an impact on the environment, be it greenhouse gases emissions or heavy particles, water issues, and consumption or visual pollution.

The leading fossil fuel is coal, which is playing a vital role in the global economy by reinforcing security of supply and contributing to price stability. Stable prices for fuel supplies are therefore fundamental to world economic prosperity.

Coal Coal is widely distributed around the world, with significant reserves in more than 75 countries. Since coal is most often both produced and consumed in the region of origin, it explains the relatively small world trade in coal compared with the gigantic trade in oil. Coal is by far the dominant fuel in power generation – coal-fired power plants produce about 40% of the world’s

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electricity. However, given the mounting concerns about the adverse impacts of fossil fuel combustion on the environment and climate, there is a pressing need to develop and deploy technologies which will allow the continuing use of fossil fuels but in a much cleaner way. In the case of coal, Carbon Capture and Storage (CCS) is one of these large-scale clean coal technologies being developed to capture carbon dioxide (CO2) emissions from burning fossil fuels at large point sources (mainly electricity generating power plants). At the same time, there is a growing interest in carbon utilisation. Carbon Capture, Utilisation and Storage (CCUS) is considered to be technically feasible and commercially viable in a few existing injection activities in the oil and gas industry for Enhanced Oil Recovery (EOR). At present, there are eight large-scale CCUS projects operating worldwide and six more under construction. Six of the operating projects are in natural gas processing, while the other two are in synthetic fuel and fertiliser production.

Five of these projects also use captured CO2 for EOR. The implementation of some of these projects has been delayed by funding shortages, and the need for an approved regulatory framework for CO2 transport and storage.

Oil The past few years have clearly demonstrated the volatile nature of oil and the world’s continuing dependence on this leading energy resource. However, the increases in oil price during this time have not been caused by dwindling global reserves, as they are not only large enough to meet the demand for a few decades but it is far too early to be worried about peaking oil reserves. In fact, since the 1970s, the reservesto-production ratio (R/P) for oil and gas has consistently remained at around 40 years for oil and 50-60 years for gas. Furthermore, proven oil reserves have increased during 1987-2007 by 17% and proven gas reserves by 38%. However, while there are vast reserves of oil globally, the concentration of energy resources in certain regions and growing supply routes to the main markets is certainly posing a problem.

Moreover, there are vast reserves of unconventional oil. For example, total world resources of oil shale are currently conservatively estimated at 4.8 trillion barrels – almost four times more than the crude oil reserves, which stand at 1.3 trillion barrels. Economically recoverable oil shale reserves are also much lower and are widely distributed around the world. Some 40 countries have registered about 300 deposits, with the USA accounting for 77% of world reserves. In the Middle East, only Jordan

and Israel are reporting oil shale data, with Jordan estimating its reserves at 28 billion barrels and Israel at 79 billion barrels.

Producing energy is an energy intensive business. Some estimates indicate that the oil and gas industry consumes up to 20% of the energy it produces for its own processes, and contributes more than 10% of global energy related CO2 emissions. Energy efficiency in upstream oil and gas operations is low by any standards, but although the most advanced gas fired combined cycle technologies reach efficiencies of 60% and above, the global average in the upstream is currently closer to 20%. While this presents a significant opportunity for energy efficiency improvements, it is not easily achievable considering the long-term nature of energy investments.

According to the global information company IHS CERA, an average of 4.5% of annual oil field productivity loss needs to be compensated for by new field developments to maintain existing levels of production.

Applying this number to oil and gas and allowing for 1.25% annual demand growth, requires the development of new resources with peak capacities equivalent to 200% of existing production facilities over the next 30 years. Developing these new resources with a close focus on energy efficiency could make a big difference, and achieve primary energy savings of 10-30% and CO2 emissions reductions of 20-50%.

Natural Gas Natural gas is today a major component in securing the objectives in the global energy trilemma – economy, energy and environment. The physical properties of natural gas; the high degree of concentration of the global resource; the substantially lower carbon footprint relative to other fossil fuels combined with the development of North American unconventional natural gas supply (mainly shale gas); and the high cost and slow pace of lower carbon alternatives – all of these have focused attention on natural gas as a ‘bridge’ to a low-carbon future.

Today, unlike oil, there is no real gas market globally. However, there are regionalised gas markets in North America, Europe and the industrialised parts of Asia, each with different market structures, conditions and expectations. In the world total primary energy supply, natural gas accounts for 20.7%, and its share in the total electricity production is about the same. The relative abundance of natural gas and its flexibility therefore make it an important political force around the world – one that will have a significant influence on further development of the global energy sector, and may over time assume a role similar to the one currently played by oil. Eastern

and Central Europe have had a preview of possible implications of supply interruptions, when gas supplies from Russia/Ukraine were disrupted for a few days during the winter season in 2010. Since natural gas produces the smallest amount of CO2 per kWh of all the fossil fuels, replacing coal and oil by natural gas where economically possible (for example, in generating electricity), is a technically, economically and environmentally sound option. However, unless CCUS is competitive with other lowcarbon alternatives, in the longer term such growing emissions constraints will limit the role of all fossil fuels, including natural gas. The world's natural gas resources are abundant and gas reserves are adequate to support the current level of production for the next 200 years.

Unconventional gas resources will also grow in importance, not least because of the depletion of conventional gas fields.

Gradual growth of natural gas production costs has already led to the development of some unconventional gas resources (for example, gas from deep formations or low-permeability reservoirs). Some resources that were previously considered as irrecoverable are now being considered and classified as proved. Furthermore, development of unconventional gas sources such as shale gas, natural gas hydrates, dense gas-bearing reservoirs and coal bed methane, could provide vast reserves of clean and environmentally friendly energy for centuries.

Collaboration is the Key The World Energy Council’s Survey of Energy Resources and its other flagship publications are providing hard data and information for global, regional and national energy strategies. As the principal impartial global network of energy leaders and practitioners, the WEC also informs decision makers by hosting high-level events and working through its extensive member network to facilitate the energy policy dialogue. The WEC represents the entire energy spectrum, with more than 3,000 member organisations located in over 90 countries.

There are two ways for corporates to take a direct role in the World Energy Council’s global activities. Firstly, the Global Partners programme which provides innovative energy and energy-related companies with immediate visibility and connects them to global WEC's members; Secondly, the Patron programme which enables exclusive organisations to engage, to help catalyse new thinking by way of supporting the WEC’s global and regional agendas. For further information, email John Bourne at bourne@worldenergy.org.

Continued development of shale gas in North America and other countries with significant resources, will have an impact on the global gas markets. However, this impact is expected to remain moderate in the short-to medium term. This is nothing comparable to what happened in the United States in mid-2011, when natural gas prices in North America (Henry Hub) hovered around US$3.70/Mbtu, which was about 72% less than at the heights of 2008. The increasing use of shale gas will primarily impact power generation, transport fuels and the petrochemical industry.

July 2012 • Global Business Magazine • 17

MINING, MINERALS & NATURAL RESOURCES

Glen Ireland Christopher Langdon glen.ireland@lw.com christopher.langdon@lw.com +44 (0)207 710 1120 +44 (0)207 710 4720

Mining and the Many Faces of Resource Nationalism The tendency of host governments and local communities to assert greater control over their natural resources has come to be known as ‘resource nationalism’. In its many forms, resource nationalism presents clear and long-term challenges for private companies engaged in mineral exploration and mining.

Modern resource nationalism can be traced back to the 1950s, when countries such as Iran and Saudi Arabia (and later Kuwait, Nigeria and Libya) took steps to assert

greater control over, and acquire direct ownership of, their petroleum resources.

However, resource nationalism emerged as a dominant theme in the mining sector only the 1990s, in the midst of the so-called commodity ‘super cycle’ (which ended abruptly with the 2008 financial crisis).

Despite the collapse in metals prices during the financial crisis, the momentum behind resource nationalism appears undiminished.

If current trends continue, the mining sector might, within a period of 20 years or so, begin to resemble the modern oil and gas industry. Currently, the world’s 13 largest companies, in terms of petroleum liquids reserves, are all governmentcontrolled national oil companies (NOCs).

ExxonMobil, the world’s largest publically traded independent (i.e. non-NOC) oil and gas producer, holds the 14th position. The world’s five largest non-NOC oil and gas producers hold, collectively, only 3.8% of the world’s petroleum liquids reserves.

Commentators, investors and other participants in the mining sector sometimes assume that resource nationalism is a phenomenon restricted to developing countries, where respect for the rule of law and sanctity of contracts is often perceived to be low. However, the reality is very different. Elements of resource nationalism can today be found in virtually every country that is blessed with abundant natural resources, including many OECD (Organisation for Economic Co-operative

Development) members.

Resource nationalism has many faces.

While some countries still engage in ‘old school’ tactics of nationalisation and direct expropriation, such examples are becoming less common. Instead, host states have begun (often with the assistance of international legal advisors) to deploy a sophisticated ‘playbook’ designed to achieve greater control over, ownership of, and economic participation in, their mineral resources. The tactics include some or all of the following: disruption or denial of access to key rail, port or energy infrastructure; failure to provide security; allegations of breaches of environmental, fiscal or other laws; enhanced compliance activity and audits; allegations of breaches of concession or development agreements; refusal to grant, or revocation of, operating, environmental or other key permits; use of discretionary powers; changes to laws to impose additional economic or administrative burdens; and withdrawal from international treaties designed to protect foreign investors.

In recent years, host states have begun to propose the formal renegotiation of mining rights with greater frequency and increased forcefulness, often in the context of an alleged contractual breach but sometimes with no legal basis whatsoever. Such proposals present mining companies with a difficult choice – engage in a process that may not be entirely consensual and will almost always lead to value-destroying changes (with little legal recourse available), or decline an invitation to renegotiate and risk irreparable damage to their government relations or retaliatory measures. The appropriate course of action is not always obvious, and must be considered and managed carefully.

By way of example, in 2007, the Democratic Republic of the Congo (DRC) initiated a review of mining licenses granted during the period of civil war (1998 to 2003).

Freeport-McMoRan chose to engage with the government and, after protracted negotiations that lasted more than a year, reached an agreement in which the state increased its ownership of Freeport’s Tenke project and the project became subject to a more onerous fiscal regime. First Quantum, by

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comparison, maintained that its contracts with the DRC were legally binding and fair, and declined to consider amendments. By 2010, First Quantum had lost virtually all of its mineral rights in the DRC, and was forced to seek redress through international arbitration.

States are now routinely passing legislation mandating direct state ownership and/or control of new (and sometimes existing) mining projects. Occasionally, such legislation is accompanied by proposals to form or expand the operations of a national mining company that is owned or controlled by the state. For example, the Republic of Guinea recently adopted a new mining code under which the state is entitled to a 15% free carried interest in mining projects, and has an option to acquire a further 25%.

When states enact such laws, affected private holders of mining rights are often forced to provide soft loans, guarantees or other financial support, to enable the state to acquire its interest following delicate and time-consuming negotiations. These private/ public structures can result in significant value leakage for private participants, and can throw up significant challenges in the context of arranging project financing for mine development projects.

In response to strong commodity prices and robust corporate profits, a number of governments have sought in recent years to introduce ‘super-profits’ or ‘windfall’ taxes, royalties and other fiscal measures designed to give the state a greater economic interest in their domestic mineral resources. In 2010, Prime Minister Kevin Rudd of Australia proposed the introduction of a 40% super profits tax on mining companies, arguing that “all Australians own these resources and deserve a fair share”. This provoked a furious response from the mining industry, including from Tom Albanese of Rio Tinto who felt that the proposed tax came “close to nationalisation and expropriation”. BHP Billiton’s Chairman, Jac Nasser, complained that the “proposed super tax fundamentally, abruptly and unfairly changes the rules of the game”.

While the subsequent political fallout led to the Prime Minister’s political demise, elements of the proposals continue to form part of legislation currently working its way

through the Australian legislature. These types of measures are not new and can be traced back to the Crude Oil Windfall Profit Tax Act passed by the United States Congress in 1980, which imposed an excise tax on oil in response to record-high prices.

However, what is new is the proliferation of these types of taxes around the world. In recent years, we have seen minerals-related windfall taxes imposed (or debated at the highest political levels) in several developing countries, including Zambia, Peru, Ghana, South Africa and Mongolia. While some countries, including Zambia, have adopted and subsequently turned away from windfall taxes, the trend of governments taking an increasing share of the value of mineral resource production shows few signs of abating.

Another aspect of resource nationalism involves the introduction of restrictions on foreign control of mineral properties, or the use of anti-trust or other laws to achieve a similar result. In May 2008, Russia introduced significant limitations on the ability of foreign investors to acquire control over ‘deposits of federal importance’, and the government-approved list of such deposits includes virtually all significant mineral projects in the country. Earlier this year, Indonesia introduced a law requiring foreigners to ensure that they do not hold more than a 49% equity interest in mining operations following the tenth year of production. Similarly, OECD countries have not been above using their laws to prevent foreign control of natural resources.

In 2010, the Canadian and Saskatchewan governments effectively thwarted a proposed bid by BHP Billiton for one of the world’s largest producers of fertilisers, PotashCorp.

Prior to that, the Australian government and foreign investment authorities, on grounds of national security, blocked China Minmetals’ $1.7 billion bid for Oz Mineral.

Mining companies need to adapt to the current political and legal environment, by developing strategies for mitigating the risks associated with resource nationalism. Such strategies will generally involve an integrated risk-mitigation plan that incorporates: structuring investments to ensure the strongest possible legal protections; where possible, entering into a robust concession or development agreement with the state;

and lastly, managing relations with the host government and local communities to minimise risk on an on-going basis.

Investment protection should be one of the main considerations when structuring a new investment (alongside tax, financing and regulatory considerations), especially in a country deemed to be high-risk.

In particular, consideration should be given as to whether an investment can benefit from available bilateral investment treaties (BITs). Treaty protections are separate from the contractual and legal rights an investor may have under a concession or development agreement. BITs add an extra layer of protection and can be used to protect investors from interference from local courts and, in some circumstances, to assist in the enforcement of arbitration awards.

Significantly, many BITs grant foreign investors a right to enforce BIT protection directly against the State in a binding international arbitration (usually under the auspices of the International Centre for the Settlement of Investment Disputes).

Of course, BITs and development agreements are not the only sources of protection against the forces of resource nationalism.

An integrated strategy can also incorporate some or all of the following elements, as appropriate: obtaining financing from local financial institutions and investors; obtaining financing from export credit agencies and/or international financial institutions; inviting the state to take equity participation in the mining project; encouraging the development of local downstream businesses; promoting local beneficiation; political risk insurance; and lastly, ensuring positive relations with the host government, both at a national and local level.

Therefore, perhaps the best strategy for protecting against resource nationalism is to ensure that each mining project is positioned in a way that fairly balances the economic benefits to foreign investors, national and local governments, and the community of which it forms a part. One-sided mining concession or similar agreements invariably become a source of simmering resentment, and can serve as a catalyst for resource nationalism in its many forms.

Glen Ireland, Christopher Langdon and Victoria Salem, Latham & Watkins LLP July 2012 • Global Business Magazine • 19

MINING, MINERALS & NATURAL RESOURCES

ATMD Bird & Bird LLP Sandra Seah Partner Tel: +65 64289429 sandra.seah@twobirds.com www.twobirds.com

The Evolution of the Mining Industry The mining industry is a global industry with operational reach across developing and developed countries. In many developing countries, it is often a significant contributor to GDP (e.g. Philippines) and arguably a means to alleviate poverty (e.g. Mozambique). For some countries, mining also provides a stable boost to their economies against the backdrop of a global economic downturn. Minerals and metals are valued for their use in low carbon development – indium, germanium and lithium being examples of some of the minor metals used in clean technology innovations.

Certain strategic minerals such as copper, lead and manganese are also stockpiled for national security and military needs or requirements, during national emergencies.

While the exploitation of mined resources provides countries with considerable opportunities for economic development, it also involves trade-offs with respect to the environment and the surrounding communities. Countries, communities and companies thereby face challenges and risks as they develop steps to ensure a responsible and sustainable approach towards growing this unique industry.

Mining Sector Reforms Historically, the mining industry has been monopolised by state-owned public corporations, leading to a decline in productivity in almost all mineral industries.

As more countries become alert to the fact that their mining sectors need to be shaken up or risk losing their lustre, reform is fast becoming the new roadmap to shape up unwieldy systems and institutions.

A textbook case in point – the improved political environment in Guinea – has already led to the start of substantial new investment in the mining sector, which could average 40 percent of GDP or more per year during the coming years.

Mining sector reforms usually comprise of several key elements, which may be implemented with varying degrees of political willpower. The usual starting point is the enactment of the revised mining legislation (mine code, implementing regulations and investment agreements), accompanied by revisions to the mining taxation to internationally comparable standards. It is also necessary on the road to reform to strengthen institutional support through re-organising government agencies responsible for supervision of the sector, and to ensure that human resources in the public and private sector are both adequate and properly trained. In most cases, state-owned enterprises have to be privatised or sold to private investors.

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Alongside such developments, mining title registries and clear land management systems should be put in place, and environmental protection legislation and enforcement provisions strengthened. In particular, environmental impact assessment law needs to be developed in tandem with mining sector reforms, and more emphasis should perhaps be placed on the cumulative impacts and long-term effects of mining activities, rather than a straightforward project-by-project assessment (R. Lyster, Z. Lipman, N. Franklin, G. Wiffen & L. Pearson (2009): Environmental & Planning Law in New South Wales. Sydney: The Federation Press). Where possible, modern earth and environmental science database management systems should be implemented, with adequate resources for geological cartography, geochemistry and geophysical surveys. Remote sensing imagery is also needed to constantly track and chart the mining environment.

Ample evidence in Latin America and Africa demonstrates that countries which have undergone mining reforms and which have managed to adopt modern business environments are better able to attract private sector investment in mining exploration and production. This in turn provides tax revenues, export earnings, employment possibilities, infrastructure development in rural areas, and transfer of technology to the host countries.

Mining companies intending to partake in exploration for metals or mineral deposits amid a wave of mining reforms, or financiers for mining ventures in such jurisdictions, will need to find a viable corporate structure as well as a sound investment and compliance programme, to best adapt to the evolving legal and organisational changes.

Coal Restructuring In major coal-producing countries such as Russia, Poland, India and China, the restructuring of the coal sector may take different forms, depending on the country's commitment to broader policy, regulatory and institutional changes. Such changes are essential for a competitive, socially and environmentally responsible coal industry to thrive.

However, with the recent chilling news that the stockpiles of the world’s largest coal port are now exceeding levels last seen in late 2008 (Shots on coal (6 June 2012): Financial Times: pp. 12), lacklustre demand may mean that another form of restructuring may soon show its face if coal prices come tumbling down.

If on an assessment of a particular country’s internal and external coal markets, it is

evident that supply potential far exceeds demand, the downsizing of the coal industry in both capacity and employment terms is likely to be imminent. Without dumping more depression on the story, it is also entirely possible that measures may have to be identified, to discontinue higher cost operations with appropriate physical and environmentally acceptable mine closure programmes. Of course such programmes must be allied to a socially responsible framework to displace, retrain or provide financial support to excess members of the workforce. Such restructuring may also be critical, to ensure that the coal sector operates in the long-term on a financially self-sustainable basis in an internationally competitive arena.

Process-at-site and Local Procurement Another emerging trend is possibly the realisation by mining companies that processing and procurement procedures can drastically alter their bottom line. When an ore or concentrate is processed at the mine site, non-standard compositions and higherthan-normal impurities may be acceptable, since it is then possible to optimise the mineconcentrator-smelter combination to achieve optimum recovery. It is also possible to select the process stage and process streams that are most beneficial from an economic (and possibly environmental) perspective, for removing particular impurities. Such optimisation is usually not possible when ores or concentrates are traded and processed at a distance from the mine site or are sold to third parties for processing. (W.J. Rankin (2011): Minerals, Metals and Sustainability: Australia and New Zealand: CRC Press/ Balkema).

At the same time, mining companies can also enjoy savings and boost economic growth in their host countries by purchasing more equipment, supplies and services from local companies. Raising the share of local procurement by mining companies spreads the benefits of mining more evenly across its host country’s economy, creating jobs and stimulating the sustainable development of local enterprises.

Therefore, it is incumbent on governments to pro-actively enact and implement appropriate policies and regulations to encourage local procurement, all the while providing a supportive enabling environment for enterprise development and investment. Governments are also able to require that mining companies develop and submit local procurement plans; review concessions on targeted import tariffs and duties; promote linkages and investment along the mining supply chain; and lastly, allocate revenues from mining to support

local supplier development. The South African Black Economic Empowerment Act of 2003 and the Broad-Based Socio-Economic Empowerment Charter for the South African Mining Industry (2005) are good examples.

These provide for historically disadvantaged South Africans to be given preferred supplier status in the supply of capital goods, services and consumables.

Mining companies should also be transparent about informing local communities on procurement opportunities, for example, in camp management, civil engineering works, construction, transport, and technical areas such as drilling, mining, and equipment maintenance. This will ensure that the local communities can benefit economically from mining operations (World Bank: (January 2012): Increasing Local Procurement By the Mining Industry in West Africa (Report No. 66585-AFR)). Having a consistent and formal approach to local procurement helps to ensure that mining companies do not only extract wealth, but create opportunities as well.

A Broad-based Approach to Mining Agreements The Mining Law Committee of the International Bar Association has started a project to prepare a Model Mining Development Agreement (MMDA), to be used by mining companies and host governments for mining projects.

The MMDA is intended for use in developing countries where a mature mining code is not in place. It may also be of use where the relevant mining code has to be supplemented by private agreement, or used as a starting point for negotiations with state-owned mining enterprises. The MMDA aims to strike a balance between interests of governments and those of investors, as the broader political climate cannot be ignored either. For instance, Indonesia is currently considering a tax on coal exports and a quota on production and higher royalties, which signals to investors that Indonesia is moving towards safeguarding its domestic supply obligations: Indonesia’s govt to curb coal exports (5 June 2012: The Business Times: pp.

16).

parties to a negotiation to take a broader integrated look at the relationship between the proposed project, the state and the local communities. The natural, social and economic environments around the mining project are also essential considerations.

The final MMDA product is web-based and publicly accessible. The public nature of this MMDA also encourages local communities and civil society groups to contribute in a sound manner to negotiation processes.

Conclusion As the mining industry constantly evolves, issues of sustainability and stewardship of valuable resources are now coming to the forefront. However, a concerted effort will have to be made by all countries, communities and companies involved, to develop and maintain modern and fair systems and processes, in order to maximise the benefits to all stakeholders in a socially and environmentally responsible way.

ATMD Bird & Bird - Mining & Minerals Credentials Bird & Bird mining lawyers represent a number of mine owners and mining interests in various jurisdictions. Our lawyers have worked on a diverse array of work in this sector including opening of greenfield mine operations; acquisition of substantial minerals operations; regulatory issues; public listing and private placements; environmental impact issues; mine management rights; mergers and acquisitions; demergers; claims on mining machinery; credit facilities and tenders. We also provide the full range of legal support services for the life-cycle of mines and processing mills – from start-up, financing and development – to transportation, infrastructure, freight and port facilities and shipping negotiations across multiple jurisdictions.

What is interesting about the MMDA project is that it has broader objectives, which seek to contribute to sustainable development – not just of the project itself but the local, regional and national community as well.

While the project clearly recognises that a mining development must be commercially viable, it is also aware that there are other critical issues around which modernday contract negotiations should proceed. The project encourages all July 2012 • Global Business Magazine • 21

MINING, MINERALS & NATURAL RESOURCES

JAPAN Davis & Takahashi Horitsujimusho Gaikokuho Kyodo Jigyo Hiroaki Takahashi Partner Tel: 81-3-6234-1240 htakahashi@davis.jp www.davis.jp

The Introduction of The Mining Amendment Act in Japan With the introduction of the ‘Mining Amendment Act’ (the ‘Act’), the Mining Act of Japan has been amended for the first time in 61 years. The rapid growth of demand for global energy in both emerging and developed economies has created international competition for natural resources in recent years. Coming into force on January 21, 2012, the Act has been enacted to firstly, ensure proper maintenance and management of domestic mineral resources, and secondly, to overcome the existing problems of the current Act. Traditionally, Japan has been regarded as a non-natural resource country, dependent on imports for most of its mineral resources and energy. However, with the remarkable advancements in technological innovation, mineral development in Japan has become feasible and attractive – in particular, marine mineral resource development. Mineral resource development in the ocean around Japan has attracted a lot of attention from the international business community. The sixth largest ocean area in the world, Japan’s ocean resources – including the exclusive economic zone (EEC) of 200 nautical miles – have greatly expanded its available mineral deposits. Not surprisingly, further attention to the proper management and development of domestic mineral resources (including development with foreign capital) is expected in the near future.

Problems Prior to the Mining Amendment Act The Mining Act has never been amended since its enactment in 1950 – a time lag that has resulted in a number of problems that need to be addressed. We look at some of the key problems and issues.

Firstly, the old Mining Act has no provisions setting out the requirements for applicants desiring to be granted mining rights. Without such provisions, the government has not had the ability to adequately screen applicants that seek mining and development rights, to ensure that they have the ability to develop the mineral resources. As a result, numerous applications have been made for new mining rights by persons with no ability to undertake the mineral development.

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Secondly, the old Mining Act has the ‘firstto-file’ policy, where the first person to file an application for the mineral rights is granted priority. This – together with the new opportunities opening up in marine mineral development – has contributed to the increase in applications for mining rights by applicants without substantial ability or incentive to undertake development. It is situations like these that lead to speculative actions in the market.

Thirdly, the old Mining Act has no regulations governing the exploration of mineral resources, which has resulted in disordered exploration activities being conducted. The government has been especially concerned with mineral exploration activities by foreign ships in Japan’s ocean areas. To address each of these problems, the following amendments have been made under the Mining Amendment Act. New Permission Criteria for the Creation of Mining Rights Under the new requirements in the Mining Amendment Act, the applicant must demonstrate that it has firstly, the necessary ‘financial basis’, i.e. sufficient funds and certainty of funding; secondly, the necessary ‘technical capability’, i.e. looking after all aspects of the business (organisation, structure, business history etc) with the primary technicians; and thirdly, the necessary level of ‘social credibility’, i.e. no history of violating criminal laws, other relevant laws or material disputes with investors.

There is also an additional and more comprehensive requirement, which now allows the government to deny permission for mining rights to an applicant where it hinders the promotion of public interest from the viewpoint of a stable supply of minerals. More specifically, the requirement is that the mineral resource development cannot be ‘extremely inappropriate’ in light of domestic and foreign social and economic circumstances, nor can it be likely to hinder the promotion of public interest.

The Minister of Economy, Trade and Industry has provided some guidance to

interpret this comprehensive requirement, and has illustrated cases that would not be in compliance.

A New Procedure to Create Mining Rights The Mining Amendment Act defines ‘Specified Minerals’ as including oil, natural gas, certain ocean floor minerals and asphalt. As Specified Minerals have been determined to be particularly important for the national economy, a stable supply is therefore particularly necessary. There is now a new application procedure for mineral rights in respect of these. While the previous application procedure was based on a ‘firstto-file’ policy, this does not apply to Specified Minerals. Instead, the government is to designate a Specific Mineral Lot and solicit for applications for mineral rights, granting permission for the mineral rights to the applicant it determines is most appropriate, in accordance with the applicant satisfying the permission criteria requirements.

A New Permission System for the Exploration of Minerals The term ‘exploration for minerals’ generally means activities involving the ‘investigation’ into geological structure that are necessary for developing mineral resources. It is limited to investigations that do not accompany mining activities and which are undertaken in a fixed area. As mentioned above, under the old Mining Act, the exploration for minerals has not been subject to regulation.

However, under the Mining Amendment Act, a new exploration permission system has been established, whereby an applicant desiring to undertake exploration for minerals will be required to apply for permission in advance. The requirements include a determination of the appropriateness of the applicant’s proposed exploration methods and that it has not violated the Mining Act. Another requirement is that the exploration is not ‘extremely inappropriate’ in light of domestic and foreign social and economic circumstances, nor is it likely to hinder the promotion of public interest.

NIGERIA

Adepetun Caxton-Martins Agbor & Segun Taiwo Afonja Partner, Energy & Project Finance Group Tel: +234 1 4622093-4; +234 803 303 2977 tafonja@acas-law.com www.acas-law.com

The Investment Potential of Mining in Nigeria There is significant evidence that Nigeria has over 34 different solid minerals distributed in the country’s richly endowed geology.

Some of the known minerals include; gold, coal, bitumen, iron-ore, tantalite/columbite, lead/zinc, sulphides, barytes, cassiterite, limestones, talc, feldspar and marble.

CHILE

Ownership of solid mineral resources is vested in the Nigerian government which grants the following titles to explore, mine and sell mineral resources: (i) the Reconnaissance Permit; (ii) the Exploration Licence; (iii) the Mining Lease; (iv) the Small Scale Mining Lease; (v) the Quarrying Lease; and (vi) the Water Use Permit. The use of land for mining operations is given priority over other uses of land, and is considered (for the purposes of access, use and occupation of land for mining operations) to constitute an overriding public interest within the context of the Nigerian Land Use Act.

It is worth noting that the Ministry of Mines and Steel Development, responsible for formulating policies and regulating operations in the solid minerals industry, has prioritised the development of seven strategic minerals (‘7SM’) – coal, bitumen, limestone, iron ore, barytes, gold and lead/zinc. As world-class minerals, these have been carefully chosen for development in view of their strategic importance to Nigeria’s economy, and the sufficient quantities that are available to sustain mining operations for years to come.

Companies engaged in mining activities are liable to Companies Income Tax at the rate of 30% on assessable profits, and education tax at the rate of 2% on assessable profits. A value added tax of 5% is payable with respect to vatable goods and services. Royalty, annual fees and rentals are also payable.

However, incentives on mining activities include: firstly, a three to five years tax holiday for new mining companies and

Eelaw Energy and Environment Legal Advice Paulina Riquelme Founding Partner Tel: (56) (2) 2299567 priquelme@eelaw.cl

The New Chilean Environmental Compliance and Enforcement Rules: A Burden or Opportunity?

Chile has recently undergone a radical change in its environmental framework regulations. These amendments focus on improving the environmental policy-making process. They introduce adjustments to the environmental assessment system, create a new compliance and enforcement system, as well as provide access to adequate environmental justice. With this scenario in mind, a new agency was created with the specific mandate to ensure that companies and individuals comply with the environmental regulations – the Superintendence of the Environment (the ‘Superintendence’).

The Superintendence plays the role of head and coordinator of environmental compliance and enforcement. To meet this task, it has been attributed a wide range of faculties, such as access to a variety of environmental compliance mechanisms and broad inspection powers. It also has the ability to establish temporary measures

a system of deferred royalty payment determined by the investment level and nature of the project; secondly, a 95% capital allowance on qualifying capital expenditure incurred on exploration, development and processing; thirdly, an annual indexation of unclaimed balance of capital expenditure by 5% (only applicable to mines that commence production within five years of enactment of the Nigerian Minerals and Mining Act 2007); fourthly, the carrying forward of losses; fifthly, exemption from customs and import duties on approved plants and machinery, equipment and accessories – imported specifically and exclusively for mining operations; and lastly, interest income tax relief.

Nigeria’s solid minerals wealth is rumoured to exceed her oil wealth. The favourable fiscal regime put in place makes Nigeria an attractive investment destination for those wishing to exploit her solid minerals potential.

William Faulconer Associate Tel: (56) (2) 2299567 wfaulconer@eelaw.cl www.eelaw.cl

for the protection of the environment and impose sanctions that can range from US$900 to over US$9 million, or could even entail the revocation of an environmental permit and permanent closure of a project.

In order to compensate for these powers, the Chilean legislators have determined that a technical jurisdictional counterpart is necessary. To that effect, they have mandated the submission of a Bill to create the Environmental Tribunals, which effectively leaves the Superintendence’s enforcement and punitive powers pending until their establishment. This Bill was recently approved and will start to operate towards the end of 2012. In the meantime, the Superintendence has been busy gathering the necessary information to make an effective and efficient enforcement policy once all its powers come into force. With this objective in mind, environmental permit holders have been encouraged to upload their obligations to its database.

Why should companies voluntarily declare their obligations? The Superintendence has stated publicly that it will be strict in

enforcing every single one of the obligations contained in each environmental permit. This might sound an obvious approach, but it has come as a shock to industry in Chile. Up until now, enforcement faculties have been dispersed in several different agencies and have turned out to be diffuse and ineffective.

The current sanctions have also had a low deterrence effect.

The new approach towards environmental compliance and enforcement is a reality soon to be faced by all productive activities.

In this context, an opportunity arises for permit holders to put in order their projects, according to the obligations contained in the permit and the commitments undertaken in the process of obtaining it. Furthermore, it is a chance to advance in corporate thinking regarding sustainability and in doing so, forge a new path towards corporate and social responsibility.

As the new regulations clearly intend to preclude the approach of ‘business as usual’, they can either be seen as a burden or an opportunity.

July 2012 • Global Business Magazine • 23

SPOTLIGHT ON MALAYSIA

SPOTLIGHT ON MALAYSIA Malaysia is one of the world’s top 20 trading nations Malaysia is ranked 21st in overall performance out of 134 countries. The country’s top trading partners includes Singapore, Japan, the United States, China, Korea, Indonesia, Hong Kong, Taiwan and Germany. To date, Malaysia has signed bilateral investment agreements with more than 70 countries. In addition, Malaysia

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has signed or implemented four bilateral FTAs and at regional level, Malaysia and its ASEAN partners have established the ASEAN Free Trade Area. ASEAN has also concluded FTAs with China, Japan, Korea and India, as well as Australia and New Zealand.

MALAYSIA – UNITED KINGDOM In 2009, Malaysia was United Kingdom’s 35th largest trading partner, and U.K. was Malaysia’s 16th largest trading partner.

Malaysia’s highest number of exports to the U.K. in terms of product sectors is electrical and electronic products. Other top exports to U.K. include machinery, appliances and parts, chemicals and chemical products, and transport equipment. In 2009, Malaysia’s bilateral trade with partner United Kingdom has a total export value of USD $1,099.44 million. Several of the major Malaysian companies operating in UK includes Petronas, MAS, Air Asia, Proton, Genting Group, and Laura Ashley, just to name a few.

Major investors from UK in the Malaysia include Astrazeneca, Standard Chartered Bank, Ernst & Young, and Glaxosmithkline.

MATRADE Malaysia External Trade Development Corporation (MATRADE) was established as a statutory agency under the Ministry of International Trade Industry (MITI).

MATRADE is the national export promotion agency, and is responsible for assisting Malaysian companies to promote products and services in the international market.

MATRADE’s vision is to promote Malaysia as

a globally competitive trading nation, and its’ mission is to promote Malaysia’s enterprises to the world. MATRADE is also actively involved in assisting foreign companies to source for suppliers of Malaysian products and services, and is represented worldwide at 40 locations in major commercial cities.

MATRADE PROMOTIONAL ACTIVITIES MATRADE runs and take part in many promotional activities to help Malaysian entrepreneurs, such as promotional booths, in-store promotions, trade promotional visits, trade fairs, and so forth. Some of the latest promotional activities carried out

by MATRADE London include Interiors Birmingham 2010, specialized marketing missions, as well as the recent Malaysia Kitchen Programme (MKP). MKP aims to educate and inform consumers in United Kingdom about Malaysian cuisine and Malaysian restaurants. This programme is also carried out in various parts of the world.

The MKP was considered a success, such as in London where year-long activities such Taste of London at Regents Park, Promotions at Selfridges London, Birmingham and Manchester, Trafalgar Square Night Market and Winter Market at Westfield Shopping Centre were carried out by MATRADE.

Mr. Raja Badrulnizam Raja Kamlazaman Malaysia External Trade Development Corporation (MATRADE) 17, Curzon Street, London W1J 5HR Tel: 020 7499 5255/4644 Fax: 020 7499 4597 London@matrade.gov.my www.matrade.gov.my

July 2012 • Global Business Magazine • 25

SPOTLIGHT ON MALAYSIA

ARSA Lawyers of Malaysia Messrs Abdul Raman Saad & Associates, Advocates & Solicitors, also brand-named “ARSA Lawyers”, was established more than 30 years ago by its founder Datuk Dr Abdul Raman Hj Saad and today, it is one of Malaysia’s leading legal service providers for all business and commercial endeavours.

The legal firm is easily remembered by its ever popular acronym, ARSA by its esteemed clients, friends and supporters not only in Malaysia, but also beyond its borders, in Singapore, Indonesia and the Middle East.

ARSA is also a member in the international legal group, Inter-Pacific Bar Association (IPBA) and Asian Islamic Finance Alliance (AIFA) A wide and comprehensive range of legal services offered by ARSA makes it a “onestop” centre for its clients’ total business expectations and commercial aspirations.

ARSA’s main practice areas include, inter alia,: Corporate & Commercial Banking & Finance Real Property & Conveyancing Litigation & Dispute Resolution Corporate Finance Islamic Banking & Finance (IBF) Building & Construction Information Communications Technology(ICT) Intellectual Property & Biotechnology International & Cross Border ARSA is currently promoting and actively specializing in areas of ICT and Islamic Banking & Finance (IBF) as two new and exciting areas of growth due to their increased demand in the market. In tune with that demand, ARSA has enhanced its human capital to face globalisation and liberalisation of its services by adopting strategic alliances and creating business synergy with global law firms, academia and other industry players. ARSA advises stakeholders on investment into Malaysia, particularly in the new regional development of Iskandar Development Region (IDR) in the state of Johor where ARSA has a strong presence. ARSA is driven by the strong conviction that it has to stay ahead of the needs of its clients and, to this end, ARSA’s core group of lawyers ensures that all legal problems affecting their clients are addressed to proactively.

For its years of service with distinction and excellence, ARSA has been given due recognition and was awarded the Islamic REIT’s Deal of the Year by Islamic Finance News in 2006. In 2009, the Deputy Prime Minister of Malaysia, Tan Sri Dato Muhiyiddin Yasin, while officiating ARSA’s brand launch, congratulated ARSA for its pioneering efforts in promoting Islamic Finance, both locally and globally. In 2010, ARSA was nominated as one of the leading

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Islamic Finance lawyers for Islamic Banking & Finance, Islamic Project Finance and Islamic Real Estate by Islamic Finance News.

ARSA is also certified with the international accreditation of ISO 9001:2008 for quality management system that produces time-andcost-efficient deliveries to its clients.

In 2008, ARSA was involved in the first successful conversion of AXIS REIT, a conventional REIT to an Islamic/Shariah compliant REIT.This exercise successfully produced an alternative method in encouraging Middle Eastern Sovereign funds and Muslim Fund managers in accessing high quality assets which generate a stable stream of cash flow backed by a steady portfolio of tenants which offers investors high yield returns and certainty of income other than just relying on the expansion plans of the then existing two Islamic REITS or the new listing of other Islamic REITS on Bursa Malaysia. Another innovative aspect is that, notwithstanding that there is no specific guidelines to regulate this conversion, it was achieved through the spirit of cooperation between the regulators, issuer and its advisers to achieve common goals.

From the compliance perspective, ARSA and the Shariah advisor work closely together in a specialised Shariah compliant due diligence module to ascertain the position of the existing portfolio to ensure that it complies with the permissible activities ratio under the Islamic REIT Guidelines issued by the Malaysian Securities Commission.

In the areas of Biotechnology, Intellectual Property, Technology & Telecommunication (BITT) which includes Information Communications Technology (ICT), ARSA had advised a healthcare provider on a series of agreements for the supply, delivery, installation, testing, commissioning, post acceptance maintenance, and support for their IT environment which will manage the administration, financial and clinical operations at its 10 hospitals in Peninsular Malaysia, where the project value was RM40 million.

ARSA provides services that assist stakeholders evolve in a managed way to meet the legal and regulatory challenges in this fast paced globalization. In tune with that demand, ARSA has enhanced its human capital to face globalisation and liberalisation of its services by adopting strategic alliances and creating business synergy with global law firms, academia and other industry players. ARSA advises stakeholders on investment into Malaysia, particularly in the new regional development of Iskandar Development Region (IDR) in Johor where ARSA has a strong presence. ARSA renders high quality service where the client will benefit from customised and focussed legal advisory and transactional work.

ARSA Managing Partner Datuk Dr Abdul Raman Saad dars@arsa.com.my KUALA LUMPUR Level 8, Bangunan KWSP, No. 3, Changkat Raja Chulan off Jalan Raja Chulan, 50200 Kuala Lumpur, Malaysia Tel : +603-2032-2323 Fax : +603-2032-5775 Key Partner : Zain Azra’ i Abd Samad Email : zain@arsa.com.my Website : www.arsa.com.my MELAKA 240A&B, Jalan Melaka Raya 1, Taman Melaka Raya 75000 Melaka, Malaysia Tel : +606-283-4857 Fax : +606-284-7868 Key Partner : Mahdi Baharom mahdi@arsa.com.my www.arsa.com.my JOHOR BAHRU Level 12, Menara Pelangi, Jalan Kuning, Taman Pelangi 80400 Johor Bahru, Malaysia Tel : +607-333-0222 Fax : +607-334-9490 Key Partner : Norliza Mohammed liz@arsa.com.my www.arsa.com.my

368-B Jalan Tun Razak 50400 Kuala Lumpur, Malaysia Tel: +603-2179 8000 infokul@micasahotel.com www.micasahotel.com

The Gardens, Mid Valley City Lingkaran Syed Putra 59200 Kuala Lumpur, Malaysia Tel: +603-2268 1188 resvnkul@gardenshtlres.com www.gardenshtlres.com

MiCasa All Suite Hotel, Kuala Lumpur & The Gardens Hotel & Residences, Kuala Lumpur The mere mention of Kuala Lumpur, Malaysia, conjures up images of a bustling capital city, impressive skylines, modern transport network and traffic congestion during rush hour. However, despite the daily dash, one would be surprised to find the tranquillity and serenity of resort-style living right in the heart of the city.

Often tagged as ‘fabulous, modern, chic, inviting’, the MiCasa All Suite Hotel, Kuala Lumpur, Malaysia, is strategically located within the embassy enclave in the Kuala Lumpur city centre, walking distance to the KLCC and the Petronas Twin Towers, only a 15-minute car-ride to the KL Sentral Station for the 28-minute KLIA Express ride to the Kuala Lumpur International Airport.

Those with an appreciation of the arts will be delighted to know that the Petronas Philharmonic Hall, National Museum and art galleries are also located nearby.

This 242 all-suite urban resort offers a select choice of suites from one to three bedrooms, decorated in warm, earthy tones, comprehensively furnished with luxurious amenities, fully-functional kitchenette and even a shopper’s service for grocery purchases.

On the premise is the award-winning Cilantro Restaurant, a favourite fine-dining venue renowned for its French cuisine with Japanese influence, is popular amongst the discerning diners in the city. Then there’s the Tapas Bistro & Bar serving Asian & Western cuisine, whilst The Deli tempts you with gourmet sandwiches, pastas, pastries and cakes for dine-in and takeaway. Other highlights include the salt water swimming pool, a gymnasium and self-service common laundrette.

served with immediate access to an extensive network of expressways with commuter rail at its doorstep and is a mere 28-minute ride on the KLIA Express rail from KL Sentral to Kuala Lumpur International Airport.

This prestigious hotel being the only hotel in Malaysia offering a totally smoke-free environment in all enclosed areas, features 448 luxuriously appointed guestrooms and 199 fully-serviced residences, providing a combined total of 647 luxuriously furnished rooms. Guest facilities include a gymnasium, infinity swimming pool, business centre, meeting and conference facilities, a ballroom with a seating capacity of 540 persons, an executive lounge and five outstanding restaurants and bars to indulge in, whilst the adjacent Gardens Mall and Mid Valley Megamall provide an endless kaleidoscope of retail outlets for the ardent shopper and entertainment venues for the family. The hotel complements its two equally successful sister hotels; the Boulevard Hotel and Cititel Mid Valley, located within the same vicinity of the rapidly growing retail and commercial business district of Mid Valley City.

Both the MiCasa All Suite Hotel, Kuala Lumpur and The Gardens Hotel & Residences, Kuala Lumpur are two of the hotels under the CHM Hotels portfolio.

The other CHM hotels in Malaysia include the Boulevard Hotel Kuala Lumpur, Cititel Mid Valley Kuala Lumpur, Cititel Penang, Pangkor Island Beach Resort, Pangkor, and the MiCasa Hotel Apartments in Yangon and St Giles Hotel, Manila.

The Gardens Hotel & Residences

With its unassuming low-rise buildings, intimate ambience and impeccable service, there is a sense of arriving ‘home’ at this tropical oasis in the heart of the city.

Its sister hotel, the The Gardens Hotel and Residences Kuala Lumpur, is indisputably another preferred choice of accommodation in Kuala Lumpur. Superbly located within the upscale precinct of The Gardens at Mid Valley City, Kuala Lumpur; one of the most compelling business, leisure, hospitality and retail destination in South East Asia, it is

MiCasa All Suite Hotel

MiCasa All Suite Hotel

The Gardens Hotel & Residences

July 2012 • Global Business Magazine • 27

SPOTLIGHT ON MALAYSIA

Malaysian Competition Law as Applied to the Airline Industry 25-2, Block B, Jaya One Section 13, No. 72A Jalan Universiti, 46200 Petaling Jaya, Malaysia.

T. +6(03) 795 88 310 F. +6(03) 795 88 311 info@christopherleeco.com www.christopherleeco.com

The Malaysian Competition Act, passed by Parliament in 2010 (‘Act’) came into force on 1 January 2012. This article examines its application to the airline industry, which is of particular interest and significance at this time to Malaysia as it seeks to develop as an airline hub. We start by examining the new competition law, before looking at the issues that may arise from collaborations in the airline industry.

company and its subsidiaries might still be considered as a single enterprise if they form a single economic unit within which the subsidiaries do not enjoy real autonomy in determining their actions on the market.

The government has also not ruled out the possibility of introducing the third pillar in the future.

Competition Act 2010

Section 4 of the Act prohibits horizontal and vertical agreements between enterprises where the agreement has the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services. However, there are safe harbour exemptions which are essentially for enterprises which have a market share below the thresholds indicated in the guidelines issued by the MyCC. Horizontal agreements which have the effect of price-fixing, market sharing, limiting or controlling production, market outlets or market access, and bid rigging are prohibited under the Act. There is no safe harbour for such anti-competitive agreements. Similarly, vertical agreements, including tie-in arrangements and exclusive dealings which set up entry barriers against new entrants in a particular industry, may also be anti-competitive.

The Act applies to any commercial activity by any company (including government-linked companies) within and outside Malaysia which affects competition in any market in Malaysia – except for those sectors exempted by the Act industries under the purview of the Communications and Multimedia Act 1998 and Energy Commission Act 2001, which have their own competition provisions. The regulator of the Act is the Malaysian Competition Commission (‘MyCC’).

Under the Act, companies which are found to have infringed any of the prohibitions, may be liable to a fine of up to 10% of their global revenue for the period during which the infringement occurred. Directors, Chief Executive Officers, Chief Operating Officers and managers may also be severally and jointly liable to hefty fines and imprisonment.

Despite being separate legal entities, a parent company and its subsidiaries may be considered as a single enterprise if they form a single economic unit within which the subsidiaries do not enjoy real autonomy in determining their actions on the market.

Anyone who has suffered loss or damage as a result of the infringement also has the right to take civil action against the company.

Generally, competition law in most jurisdictions around the world covers three main pillars – prevention of anti-competitive agreements, abuse of a dominant position, and ruling against anti-competitive mergers and acquisitions. However, while the Act is similarly framed, it does not provide for regulation of mergers and acquisitions which may be anti-competitive. Nonetheless, the resulting entity would still come under the Act if it results in a dominant position. Even if there are separate legal entities, a parent

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Anti-Competitive Agreements

Abuse of a Dominant Position Enterprises are prohibited under Section 10 of the Act from engaging in any conduct which amounts to an abuse of a dominant position, such as by imposing unfair purchase or selling prices; limiting or controlling production; market outlets or market access; refusing to supply; applying discriminatory conditions that discourage new market entry; engaging in predatory behaviour towards competitors; or lastly, buying up scarce supplies in excess of the dominant enterprise’s own needs. There is currently a public consultation proceeding on proposed guidelines in this area..

The Application of Competition Law to the Airline Industry In the airline industry, typical anticompetition issues include global alliances, tariff coordination, code-sharing, price-fixing, airport capacity and slots allocation, predatory pricing, frequent flyer programmes, corporate discount schemes, and travel agent commissions. These anticompetition issues may arise from day-to-day dealings with competitors, agents, customers, joint venture partners, airport operators, and suppliers. They may come under the scrutiny of competition authorities.

In many countries, airlines have to seek permission and clearance from the competition authorities before they are allowed to form an alliance. The authorities will consider the terms of the agreement, the potential impact of the alliance on the relevant markets, as well as whether the alliance would result in excessive market dominance. The authorities in many jurisdictions are generally supportive of alliances (as they would result in cost savings, better connectivity and foster greater synergies between the airlines), with the exception of those alliances that result in elimination of competition. However, there is a recent finding that suggests that consumers do not actually receive better cost savings as a result of an alliance.

Code-Sharing Code-sharing is an arrangement between airlines where an operating airline allows the marketing airline, as a code-share partner, to market and sell tickets on the operating airline’s flights. Code-sharing agreements are generally permissible as they provide substantial benefits to consumers such as seamless connections, greater network access and competitive airfares. However, some code-sharing agreements may give rise to anti-competitive concerns as the multiple displays of code-shared flights on computer screens – including that of the marketing airline – push down other airlines’ flights to be displayed on the following screens which may be missed by consumers searching for other flight options. The code-sharing may also cover comprehensive integration of marketing and sharing of operational information that could result in distortion of healthy competition practices. These concerns would probably not occur where airlines operate in different market segments and use different business models.

In Europe and the US, exemptions have been granted to a number of co-operation agreements between airlines, on the condition that the whole arrangement benefits the customers of each party by providing access to a wider range of routes. Recent exemptions closer to home, were the approvals granted by the Competition Commission of Singapore for the Singapore Airlines Limited (SIA) and Virgin Australia Airlines Pty Ltd’s codeshare, and for All Nippon Airways Co. Ltd, Continental Airlines Inc and United Airlines Inc Joint Venture. This had the objective of achieving ‘metal neutrality’ between the enterprises such that it is makes no difference ‘which airline operates the underlying metal (i.e. the aircraft) on each route’.

Abuse of a Dominant Position Merely being in a dominant position is not unlawful; it is the abuse of a dominant position that is prohibited under the Act. Examples of such an abuse of a dominant position in the airline industry include: imposing excessive, predatory, or discriminatory pricing; the exclusive application of only one tariff on a given route; offering discounts or commissions with a view to excluding competitors from the market; and lastly, refusing to supply or allow access to essential facilities.

Predatory Pricing Predatory pricing is a huge concern amongst the airlines in the fight for larger market share. Predatory pricing is where a company sets the price for its products or services below the cost of producing, or providing the products or services in order to force its competitors to exit the market. Once the competitor is eliminated, the company will then raise its price to an exorbitant level to recoup loss of revenue suffered during its predatory pricing exercise. However, in light of collaboration, it is unlikely that there will be any predatory pricing between collaborators. Instead, airfares for each airline will probably be aligned to complement each other in their respective market segments.

Frequent Flyer Programmes Frequent flyer programmes and corporate discount schemes which have the effect

of providing incentives to customers to stick to one particular airline or alliance, may be viewed as creating an anticompetitive effect. However, in the case of an alliance, consumers could benefit from the programme, since the ‘air miles’ earned with one airline may now be redeemed by travelling with an associate airline that serves other destinations.

Travel Agent Commissions Similarly, travel agent commission agreements or use of proprietary ticketing systems which oblige travel agents to be dedicated to one particular airline and discourage them from selling tickets for other airlines, may be anti-competitive behaviour and should generally be avoided. For example, British Airways was found to have abused its dominant position, by operating a commission scheme that had the effect of excluding British Airways’ competitors from the UK markets for air travel.

Conclusion Some may view collaboration as effectively reducing or removing competition, as each airline will dominate a market segment with no competitor in that segment. On the other hand, even with the collaboration, the airlines continue to face competition from each other and from other airlines in the market, especially if consumers still have sufficient options to fly with other airlines.

However, collaboration need not necessarily be a bad thing in itself if it is aimed at focusing on the core competency of each airline, and fostering closer ties between the airlines so as to enable them to compete with bigger players in the industry. As such, so long as the airlines comply with the applicable laws, the collaboration may eventually yield greater benefits to consumers. The International Chamber of Commerce has recognised that the trend of forming alliances and other forms of cooperation among airlines is increasing, and that it can be beneficial to the industry and consumers. Nevertheless, it is also felt that these cooperative agreements must be subject to fair and objective competition rules, so as to create a stable and predictable legal environment at the same time as protecting the rights and interests of other players in the industry.

The Act will certainly have an effect on the shape of the Malaysian airline industry in years to come. Hopefully it will be a positive one.

Christopher Lee & Dr. S. Nadarajah

July 2012 • Global Business Magazine • 29

SPOTLIGHT ON MALAYSIA

UNITED KINGDOM, UNITED ARAB EMIRATES AND MALAYSIA

Raising the bar on global safety standards in oil and gas Worth billions to the global economy, the oil and gas industry is poised for significant growth in the next five years with a rise in production activity, asset decommissioning and the estimated demand from the emerging offshore renewable and carbon capture and storage industries creating a significant demand for a safe and skilled offshore workforce and supply chain.

OPITO is a unique organisation which delivers standards to improve workforce safety and competency in worldwide oil and gas provinces.

The world class network of OPITO approved training providers now stretches across 30 countries with more than 150,000 people trained to OPITO standards worldwide last year.

Industry funded and employer-led, the company recently underwent a major restructure to help it better address the growing needs of the oil and gas industry both internationally and in the UK. The international organisation works with governments, national oil companies, multi-nationals and contractors to meet their skills needs, providing independent advice and guidance on effective management of workforce skills development, emergency response and occupational standards and qualifications and quality assurance of training delivery.

OPITO has structured itself to meet the ever increasing demands of the global industry by establishing international support offices in Kuala Lumpur, Malaysia and Dubai in the United Arab Emirates.

Its international workforce helps to support and guide 70 approved training providers who have passed stringent tests to allow them to pass on the OPITO message.

Amongst other initiatives, OPITO has led in the creation of employer forums in key provinces and has been able to break new ground by delivering Basic Offshore Safety Induction and Emergency Training in India, Saudi Arabia and Libya.

In January, the company signed a landmark memorandum of understanding with the Iraq Ministry for Oil, Training and Development Directorate to help the war-torn country develop the skills and training necessary to enable exploitation of its hydrocarbon resources.

Ian Laing, managing director of OPITO International, said: “By 2030, global energy demand will be almost 35% higher than it

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was in 2005 and hydrocarbons will continue to provide the majority of the world’s energy needs.

“For any company working within any industry, its people are its most valuable asset. Standards are developed by the industry to reflect today’s offshore oil and gas working environment. Many markets are not as mature as the UK and therefore the skills offering has to be different. OPITO wants to be at the forefront in serving these markets so we have separated our business to reflect this and provide a distinct offering for each province.

Ian Laing Managing Director, OPITO International + 971 4 4458482 + 971 4 4458481 Ian.laing@opito.com www.opito.com

“The memorandum of understanding with Iraq is an exciting opportunity for OPITO and acknowledgement of the high regard in which our standards are held globally. But more importantly this is a major step forward for the people of Iraq, who if they are to successfully re-build their country must create a safe, sustainable and profitable oil and gas industry.”

Working in partnership with the government and the industry in Iraq, OPITO will set out a broad strategy which will help build the skills base through use of standards and qualifications, best practice and proven learning products. ”As with each of our partnerships, this is a long-term relationship which we are confident will strengthen as the country develops and prospers,” added Mr Laing.

“Employers are in agreement that safety standards around the world have improved as a result of what OPITO does and are choosing voluntarily to adopt OPITO standards because they are recognised by employers around the world as the best for the oil and gas industry.

“While the individual gains an advantage, the industry as a whole, in turn, also reaps the benefit of a robust quality assured training and competence environment.”

While OPITO continues its international drive, the company remains committed to serving the UK industry. It is widely recognised as the industry’s focal point for skills, learning and workforce development in the United Kingdom.

A major initiative for the North Sea industry has been the introduction of the Minimum

Industry Training Standards (MIST) programme which aimed to ensure the offshore workforce has the necessary safety awareness and training to avoid risk and ultimately incidents.

Covering nine basic safety elements, including the core topics of risk assessment and permit to work, with new key safety awareness centred on mechanical lifting and platform integrity, to date, 90% of the UK workforce has undertaken the training.

“MIST set a new common standard to ensure that everyone, regardless of role or discipline, has the same basic safety understanding. An entirely voluntary programme, its success is testament to the continued commitment within the industry towards ensuring the highest possible safety standards,” said Mr Laing.

“It provides the industry with a solid platform on which to build its skills base further in the future and an international version of the training programme has been made available to the global oil and gas industry.”

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TRIP ADVISOR

Hotels for grown-ups Going on holiday is one of life’s greatest pleasures, and indulging in a peaceful break at a top-rated hotel, perfectly suited to grown-ups can be even better. Here, TripAdvisor presents 10 wonderful hotels for grown-ups.

“These are great hotels around the world offering travellers rest, relaxation and luxury in beautiful locations,” commented TripAdvisor spokesperson Emma Shaw.

“With their superior service, stunning accommodation and enviable location, these hotels are a perfect treat for adults wanting a special getaway.”

Hotels for grown-ups: Villa St Maxime – St-Paul-de-Vence, France This luxury hotel surrounded by elegant gardens offers breath-taking views of the Riviera. Beautifully decorated with marble and sleek art, this charming property is a wonderful base to unwind.

As one TripAdvisor traveller said, “My husband and I just spent 2 nights at Villa St. Maxime and it was the perfect.”

Grace Santorini Hotel – Imerovigli, Greece Located high above the Caldera, Grace Santorini Hotel boasts enviable views of the famed Santorini sunset over the Aegean Sea from its luxury suites and balconies.

As one TripAdvisor traveller said, “You will not find a more perfect hotel anywhere! Fantastic location, amazing staff, superb rooms, stunning views and wonderful food.”

Hotel Miramar – Opatija, Croatia Built in 1876 and renovated in the style of Belle Époque (the beautiful era), the décor featured in Hotel Miramar is like no other and evokes opulence and elegance throughout.

As one TripAdvisor traveller said, “We spent the second week of our honeymoon at Hotel Miramar and we absolutely loved every second of our stay. The food was fantastic and the setting on the terrace is breath-taking and very romantic.”

Dreams Luxury Suites – Imerovigli, Greece This tranquil property is famed for its beauty and unique personality. Featuring four luxury suites, each distinctively designed; guests can relax on the terraces whilst being mesmerized by the sights of the Caldera.

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As one TripAdvisor traveller said, “I stayed here with my girlfriend and it is quite simply the best luxury hotel I’ve ever stayed at. The views from this hotel are truly stunning with direct views of the volcano and surrounding sea, as well as the towns in Santorini.”

East Hotel – Hamburg, Germany A bespoke-designed hotel adorned with handmade furnishings, natural fabrics and textures, East Hotel is a treat for your senses featuring unique visual design and individual scents in each area of the hotel.

As one TripAdvisor traveller said, “This is a superb hotel featuring modern and quirky styling, and the food in the restaurant was fantastic.”

Hotel Vila Gale Praia – Albufeira, Portugal A beachfront hotel ideally located near the Algarve coast, Hotel Vila Gale Praia offers picturesque views of a palm tree garden and is a short distance from restaurants, shops and four other beaches.

As one TripAdvisor traveller said, “We stayed here for 4 days during our honeymoon and I wish we had stayed longer. It is a great, relaxing and romantic place to stay.”

Apsenti Couples Only – Mykonos – Agios Ioannis, Greece

Carmen de la Alcubilla del Caracol – Granada, Spain Located on the slopes of the Alhambra, Carmen de la Alcubilla del Caracol offers outstanding panoramic views of Sierra Nevada and Granada. Each room has been designed to maintain the character and style of a traditional Granada house, featuring antique furniture and art.

As one TripAdvisor traveller said, “This is a remarkable hotel with stunning views. The rooms are comfortable and the terrace is delightful.”

Hotel Resort & Spa Miramonti – Rota d’Imagna, Italy Nested in the heart of Imagna Valley, the spectacular scenery of the Valley and mountains make Hotel Resort & Spa Miramonti a splendid location to disconnect and marvel at nature.

As one TripAdvisor traveller said, “A stunning location. You cannot fail to be impressed by both the quality of accommodation, friendly service and views you will remember for a long time to come.”

Palazzo Talamo – Positano, Italy With terraces offering idyllic sea views from each room, guests can admire the striking sights of the Amalfi Coast. Located close to the historic centre of Amalfi, restaurants, bars, shops and beaches are within walking distance for all to explore.

An intimate, boutique hotel located on the west side of the island, Apsenti is a serene getaway featuring an outdoor plunge pool and Jacuzzi rooms – ideal for guests to relax and watch the world go by.

As one TripAdvisor traveller said, “This is an amazingly beautiful place to stay and the ocean view right from our room is breath-taking.”

As one TripAdvisor traveller said, “We celebrated our 10th wedding anniversary at Apsenti and it was fantastic - very romantic, relaxing and chilled out.”

For more information on these hotels, visit www.TripAdvisor.co.uk

LUXURY BRAND SERIES – BEACH RESORTS

Beach Resort s

LUXURY BRAND SERIES

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Four Seasons, Maldives Purveyor of legendary service and unsurpassed experiences the world over, Four Seasons treats its guests to not one but two private islands in the Maldives: Kuda Huraa and Landaa Giraavaru. And because choosing between the two is nigh on impossible, the islands’ inimitable live-a-board, Four Seasons Explorer, cruises between the two on all-inclusive three, four or seven night itineraries that include everything from three dives a day to sumptuous barbecues on deserted coral islands.

But first, Kuda Huraa. Just 25 minutes in a speedboat (or ten minutes private seaplane charter) from Male airport, this charming garden island houses 96 thatched bungalows and pavilions arranged in the style of a traditional Maldivian village. All accommodation, restaurants and recreational facilities flank a colourful central promenade lined with bougainvillea, frangipani and hibiscus flowers. The resort is close to some of the best , and warmest, surf in the world and has a Tropicsurf Surf School offering classes, courses and clinics for water babies aged six and up. The Island Spa � the only one in the Maldives on its own private isle � offers innovative treatments with an emphasis on wholly natural products and restorative marine nutrients. Other highlights include over 30 dives sites within a ten to 45 minute sail, thrilling shark safaris, three world-class restaurants and a chilled-out Sunset Lounge.

Kuda Huraa’s sister island, Landaa Giraavaru is located 100kms north in the remote Baa Atoll. Guests can fly direct by seaplane

from either Male or Kuda Huraa, or sail via Four Seasons Explorer. Those choosing the latter option are in for the biggest treat.

Complete with its own PADI 5-Star Dive Centre, spa therapist, marine biologist, gourmet chefs, whirlpool, water sports and remote island excursions, the luxurious three-deck catamaran leads a maximum of 22 guests on an unforgettable odyssey into the undiscovered Maldives.

Upon arrival at Landaa Giraavaru, the first thing that hits you is the vast turquoise lagoon stretching two kilometres into the deeper blueness beyond. Home to turtles and rays, pilot whales, dolphins and baby lemon sharks, the lagoon is also the perfect arena for water sports ranging from catamaran sailing to kite surfing and seabobs. The island itself is a natural wonderland with vast accommodation compounds, isolated restaurants and extensive recreation facilities hidden down dense jungle paths. Join pioneering conservation projects in the Marine Discovery Centre or immerse in the healing heart of The Spa & Ayurvedic Retreat, complemented by complimentary ayurvedic consultations for all guests, and dosha-specific options in all four restaurants.

Last but by no means least, the island is just 20 minutes from Hanifaru Bay, one of the best places in the world to snorkel with mass gatherings of manta rays and whale sharks (May to October).

You won’t ever want to leave.

Four Seasons Resort Maldives at Kuda Huraa Four Seasons Resort Maldives at Landaa Giraavaru and Four Seasons Explorer Contact Person: The central reservations department of Four Seasons Resorts Maldives Tel: + 960 66 00 888 Fax: + 960 66 00 800 reservations.mal@fourseasons.com www.fourseasons.com/maldives

July 2012 • Global Business Magazine • 35

LUXURY BRAND SERIES – BEACH RESORTS

Sofitel So Mauritius A TIMELESS LUXURIOUS EXPERIENCE In the heart of the Indian Ocean, imagine a fragrant Eden on the shores of the Indian Ocean. Mauritius has preserved its natural treasures and offers an unforgettable experience at a cultural crossroads.

A prime destination for scuba diving, the island is also a golfer’s paradise, with superb golf courses framed by purple mountains and overlooking the crystalline waters of the Indian Ocean.

A luxuriant garden of flowering hibiscus, paradise of exotic colorful birds.

On the south coast of Mauritius, Bel Ombre is a tranquil haven exemplifying the island’s natural character. Sophisticated and sincere, with brilliant green sugarcane fields, lengthy white beaches, and turquoise water offering striking panoramas.

Delicate flavors, typical warm-hearted Mauritian welcome and elegant service, heady fragrances of plants fresh from the garden in this exceptional environment, in the heart of a 34-acre landscaped park, Sofitel So Mauritius welcomes you into a fragrant, luminous tropical paradise highlighted by modern architecture and fine materials.

AN EXTRAORDINARY ENCOUNTER BETWEEN TWO CREATORS Imagined by Thai architect Lek Bunnag, the 92 Suites and Villas are intimately nestled within luxuriant Eden-like gardens.

Architect Lek Bunnag has designed a radiant venue that celebrates the magnificence of nature and brilliantly blurs barriers between indoors and out. Exclusive creations and collections by Kenzo Takada superbly highlight the purity of Lek Bunnag’s modern décor. Inspired textiles, decorative objects, tableware, and beach accessories contribute vibrant touches of color to this immaculate paradise.

Discover the incomparable tropical delight of outdoor bathtubs and showers. Savor the tranquility of a private patio and indulge in

the luxury of contemplation, drawing energy from the sight of flourishing vegetation and brilliant tropical flora.

Designed on a human scale, totally original in style, this is more than a new concept; it’s a unique sensory experience.

Thai architect Lek Bunnag and fashion designer Kenzo Takada; two talents concerted creativity and “savoir faire” to conceive a hotel that is fundamentally different and unique.

A NEW VISION OF CONTEMPORARY LUXURY IN THE HEART OF NATURE Exoticism, relaxation, wellbeing, comfort and 5-star service in incomparable surroundings are assured at Sofitel So Mauritius, a hotel that personifies a new vision of contemporary luxury set in a lush natural landscape. This new SO address comes to meet the demands of a sophisticated clientele who appreciate authenticity and refinement. Advancing and confirming brand values symbolizing the French art de vivre.

In the most protected region of Mauritius, bordering a 520-metre white sand beach, this eco chic resort offers 84 Suites Prestige - 60 square meters in size, 6100 - square meter Beach Villas and 2230 - square meter Beaulieu

Villas, hidden away in the luxuriant tropical vegetation.

Suites and Villas are all detached and single storey to ensure complete seclusion, with individual gardens, outdoor bath tub (and private pools for the villas), patios with open air showers, and superlative comfort with highest quality amenities (Sofitel “MyBed” concept with king-size bed, dressing room, separate toilets, mini-bar, Espresso machine, Complimentary Wifi, LCD TV as well as 24hour personal butler service) and much more.

ENTER A WORLD OF REFINEMENT SET BESIDE THE LANGUID WATERS OF THE INDIAN OCEAN La Plage | Making sublime use of local ingredients, the inspired chef has created imaginative tapas and aromatic main dishes.

Chic, relaxed, and facing the lagoon, La Plage is the ideal place for memorable meals.

Flamboyant | In the center of the hotel grounds, overlooking the infinity pool, Le Flamboyant celebrates contrasts: French dishes and Mauritian spices, an intimate atmosphere in a wide open space, modern shapes using traditional wood and stone.

Striking décor is enhanced with exclusive Sofitel So Mauritius tableware designed by Kenzo TAKADA. Le Takamaka | Trendy and chic, Le Takamaka is the perfect place to indulge in sweet or signature and molecular cocktails and other fantastic drinks. Sleek design and a laid-back atmosphere.

The fine art of French-style living has been subtly enhanced by the rich local culture, resulting in a unique and intense celebration of all the senses.

Sofitel So Spa offers poetic, naturally rejuvenating treatments enriched with local fruits and spices. Organic beauty products and harmony-inspiring pleasures by Clé des Champs, French organic cosmetology innovator.

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Revitalizing hibiscus flower treatments and unique Céline Claret-Coquet gold needle anti-age acupuncture. Come to So SPA for natural pleasures and deep benefits.

At So Fit, work out with state-of-theart fitness equipment in lush tropical surroundings. Enjoy the alluring infinity pool, snorkeling, golf, tennis, and scubadiving.

To ensure your kids also have the time of their lives, So Kids offers creative and funfilled activities designed just for them.

Discover or rediscover Mauritius in a new way, at a resort where modern design enhances natural paradise.

Sofitel So Mauritius Royal Road, Beau Champ Bel Ombre Mauritius H6707@sofitel.com Tel: +230 605 5800 Fax: +230 615 1049 www.sofitel.com/gb/hotel-6707-sofitel-somauritius/index.shtml

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LUXURY BRAND SERIES – BEACH RESORTS

The Westin Resort Nusa Dua, Bali LOCATION: Located within an exclusive enclave on Bali’s southern peninsular, overlooking the Indian Ocean. The resort is 25 kilometers from Denpasar and 10 kilometers from the Ngurah Rai International Airport. It is within walking distance of luxury hotels, shopping, entertainment, restaurants and a host of other recreational facilities in Nusa Dua area.

GUEST ROOMS Features 334 modern luxury rooms designed by FBEYE International, a boutique interior design firm based in Singapore. The contemporary guestrooms were designed with touches of nature and traditional Balinese accents reflecting its local surroundings and maintaining its tropical edge. The design emphasizes the beauty and harmony of the space in a resort style with a sense of place. Guest rooms average 38 sq. meters in size, all rooms and suites are spaciously appointed with ocean, and pool or garden views.

STANDARD AMENITIES Each contemporary guestroom is complete with ergonomically designed furnishings that feature our 3rd generation Heavenly® Bed, dual walk in wardrobe. Within this space there is abundant storage for luggage and belongings, the personal safe, iron and ironing board are located. Centrally controlled lighting logic, cordless IDD and speaker phones with voicemail system, audio visual entertainment port (multimedia hub) with i-pod connectivity, over 50 TV channels, 37” flat screen television and

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Wi-Fi internet access. Light filled spacious bathroom experience includes a separate shower and generous stand alone bathtub and dressing table in the bathroom. Glass front refreshment center with its surrounding personalized in-room shop with lifestyle products will meet every need of your stay.

King bedded rooms will be additionally furnished with a corner lounge and twin rooms have now been transformed to Double-Double rooms with two spacious 2 x 1.37 meter wide beds with chaise seating for those moments of relaxation.

Kawasan Pariwisata Nusa Dua, BTDC, Lot N3 Nusa Dua 80363 Bali, Indonesia Mailing Address: PO Box 36 Nusa Dua 80363 Bali, Indonesia Tel: (62-361) 771 906 Fax:(62-361) 771 908 westin.com/bali

Sofitel Fiji Resort & Spa Fiji UPGRADE TO LUXURY AT THE SOFITEL FIJI RESORT & SPA Luxurious French sensibilities and Sofitel style is what truly sets this resort apart in a destination spoilt for choice. Down to earth Fijian friendliness is what keeps guests returning time and time again.

Famous for its long, lazy beachfront location, swaying palm trees and romantic sunsets, the Sofitel Fiji Resort & Spa is Denarau Island’s most alluring resort enjoying a beach frontage, the island’s largest lagoon pool, and 26-acres of lush gardens with views extending across Nadi bay.

With a prime address on Denarau Island just 20 minutes drive from the Nadi International airport, the resort is a modern, integrated destination unfolding across 26-acres of lush garden paradise with views extending across Nadi bay.

Sofitel’s signature style emanates throughout, with classic furnishings and Fijian customs infused in every aspect of resort life, including its award winning restaurants and spa.

Best of all this month, the resort celebrates romance to introduce an elegant new Luxury Room category, including ten inspiring suites.

with a separate ‘adults only’ deep end and secluded spa.

For those who like adventure, Sofitel Fiji offers Fiji’s most extensive range of tailored watersport and recreation options in association with onsite operator, Adrenalin Fiji and a Rosie Holidays touring desk to book day trips such as cruises and village visits conveniently at the hotel.

When it comes to cuisine Sofitel’s V Restaurant is unrivalled. Proudly Fijian with local artwork and motifs adorning white walls and influencing its decor and design, V restaurant is also unapologetically chic.

The restaurant is completely air conditioned for the comfort of its guests, ensuring a contemporary and comfortably cool dining encounter. V’s stunning presentation is complemented by the culinary craftsmanship of renowned executive chef, Brendon Coffey making it the perfect venue for those with an appreciation for fine food, wine and service.

Couples visiting Fiji for a romantic interlude can enjoy a peaceful and leisurely breakfast – sans children – at Sofitel Fiji Resort & Spa’s beachside restaurant, Salt. Situated between the ocean and the resort’s long lagoon pool, Sofitel’s ‘adults only’ breakfast is available each day from 08.00am to 10.00am.

Sofitel’s à la carte couple’s breakfast at Salt complements the resort’s buffet breakfast with sparkling wine option which is available each day at Lagoon restaurant.

The resorts features a full service Mandara day spa with a menu of unique wellbeing experiences including the Fijian ‘bobo’ massage, and body treatments infused with local ingredients. Boasting nine exclusive beachside bures, including specially created couples rooms, beautiful bures with outdoor garden showers, plus a private sauna, whirlpool and juice bar retreat, Mandara is a spa sanctuary for Sofitel guests.

Sofitel also features the world’s first ever Pure Fiji concept store onsite, in addition to French inspired sidewalk cafe, La Parisienne for casual dining. Of course, the most talked about and loved part of the resort is no doubt its stunning lagoon style pool complete

Visit www.sofitel.com

July 2012 • Global Business Magazine • 39

LUXURY BRAND SERIES – BEACH RESORTS

Four Seasons Resorts Lana`i Lana`i, Hawaii On the pristine island of Lana`i in Hawaii, two Four Seasons resorts provide a one-ofa-kind experience – where turquoise blue water meets the lush verdant upcountry of mountain and forest. In these two exquisite resorts – frequently listed among the world’s finest – Four Seasons combines the very best of Lana`i.

Once the largest producer of pineapple in the world, Lana`i has reemerged as a luxury resort destination. The plantation character and genuine warmth of the people still remain, but the focus of this island ushered in a new standard of exotic luxury.

Four Seasons Resort Lana`i at Manele Bay and Four Seasons Resort Lana`i, The Lodge at Koele are set amid two stunning, yet contrasting backdrops of mountain and sea, all beckoning to be explored. With two completely different, yet complementary resorts, guests here can have an “island-hop” experience without ever having to leave the island.

Set cliffside, overlooking a protected marine preserve, Four Seasons Resort Lana`i at Manele Bay is a romantic retreat with championship golf, award-winning cuisine and offers some of the finest water sports in

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the world. Sun-seekers staying beachside can snorkel amid a pristine coral reef, spinner dolphins and colorful reef fish in Hulopo`e Bay (complimentary snorkels, fins and masks – including prescription masks are available at the beach kiosk.) Those looking for an adrenaline rush can take surfing or stand-up paddleboarding lessons from a local surf champion.

The culinary component is an integral part of the guest experience on Lana`i. Guests can embark on a culinary journey with an array of dining options between the two resorts.

There are five restaurants total, ranging from steak and Hawaiian seafood, contemporary Italian to classic European techniques.

Regardless of your preference, your senses will be awakened.

Just 20-minutes away is Four Seasons Resort Lana`i, The Lodge at Koele. The Lodge is the essence of unexpected Hawaii. Set in the verdant upcountry, the Resort is reminiscent of a country manor estate, surrounded by towering Cook Island pines and offering estate activities such as championship golf, horseback riding, horse-drawn carriage rides, sporting clays and archery, croquet, and lawn bowling. With just 101 rooms, guests can experience serenity and romance at this island oasis.

Offering experiences that cannot be found elsewhere, Lana`i is a true getaway for those who appreciate the beauty, privacy, adventure and richness of Hawaii the way it was meant to be. Act fast, Manele Bay is offering a 4th Night Free promotion and The Lodge at Koele is offering a 3rd Night Free.

While Lana`i boasts an abundance of activities, rejuvenating at The Spa should be high on the priority list. The Spa at Manele Bay specializes in authentic Hawaiian treatments using indigenous ingredients and techniques. Popular treatments include the Ki Pola Ho `Olu (Cooling Ti-leaf Wrap), a spiritual and re-energizing treatment using the healing powers of the ti-leaf plant or the Lomilomi Massage, using flowing rhythm it refreshes the body and spirit.

Four Seasons Resorts Lana`i Reservations 1-800-321-4666 www.fourseasons.com/lanai

Banyan Tree Seychelles Situated in the scenic Intendance Bay along the south western coastline of Mahe with spectacular views of the Indian Ocean, Banyan Tree Seychelles is only 30 mins from Mahe International airport and 45 mins from the capital, Victoria Commanding majestic views of the Indian Ocean, the 60 luxuriously furnished pool villas are perched on hilly terrain amid exotic flora and fauna. These villas combine the very best of Seychellois architecture contemporary, colonial and plantation décor – from high sloping ceilings, airy verandahs to ethnic woven textiles.

Every villa features its own private infinity pool, spacious living and dining pavilions, bathroom with His and Her vanity counter, mini-bar, in-villa safe, coffee and tea making facilities, hair dryer, IDD telephone, ceiling fan, air-conditioning, DVD/CD player with stereo system, satellite television and internet connection Rediscover inner peace amidst lush serene surrounds at Banyan Tree Spa. Soothing massages and therapeutic spa treatments rejuvenate the body, mind and soul at this award winning spa. Let our professional therapists bring you to a state of oblivion amidst the dramatic setting of the Seychelles Connoisseurs will be spoilt for choice at each of the resort’s fine dining establishments.

Banyan Tree’s signature Saffron tantalizes with award winning Thai cuisine and Southeast Asian specialities. Au Jardin D’Epices serves international favourites in a casual setting overlooking the bay whilst Chez Lamar offers exhilarating journey of Creole cuisine filled with an irresistible blend of spices and flavours. In villa dinning options include a comprehensive a la carte menu and BBQ under the stars. Intimate dinning experiences also await – specially created and conceptualized to epitomize the romance of travel various dining experiences are available. Sea and Stars experience, Grill on the sand, Moonlight Gazebo and Champagne on the rocks

Prepare to set sail in the twin hulled catamaran – Banyan Lagoon 1 – take to the sparkling seas of Seychelles with upto 4 guests on overnight nautical cruises around the inner islands and experience first hand the sights and marine wonders of the archipelago

Free phone reservations number 00800 300 200 00 Reservations email address reservations-seychelles@banyantree.com

Banyan Tree Spa takes a holistic approach to physical and spiritual well being, providing a sanctuary for the senses. Drawing on Asian traditions that date back to centuries, our intimate retreats blend romance and serenity with exotic sensuality. The architecture of our intimate spa pavilions draws upon local inspiration to blend seamlessly with the beauty of the natural environment.

Rediscover inner peace amidst lush serene surrounds at Banyan Tree Spa. Soothing massages and therapeutic spa treatments rejuvenate the body mind and soul at this award-winning spa The Banyan Tree Gallery offers signature amenities for the home meticulously created by artisans around the globe Other facilities include: outdoor tennis court, gymnasium, mountain bikes. Non Water sports activities include Snorkeling equipment and kayaks are also available Water sports facilities such as diving and fishing can be organized offsite July 2012 • Global Business Magazine • 41

BERMUDA FOCUS

Bermuda Focus Joanne MacPhee Executive Director Bermuda Chamber of Commerce 1 Point Pleasant Road / Hamilton PO Box HM 655 / Hamilton HM CX Tel (441) 295-4201 / Fax (441) 292-5779 www.bermudacommerce.com/

The Chamber of Commerce in Bermuda: A Relevant Fit for Today’s Economy The Bermuda Chamber of Commerce (‘The Chamber’) was officially established in February 1907, with a mandate ‘to develop, encourage, promote and protect the commercial, professional, financial and general business interests, and the economic well-being of the members of the Chamber and of Bermuda.’

Over a century later, The Chamber remains committed to its core purpose and in doing so continue to guide and protect the general welfare and prosperity of our members, the business community and Bermuda as a whole. It does this while promoting and maintaining sound and ethical practices, educating our members about our on-going activities and advising, and lobbying the government on matters of mutual concern.

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There is something inspiring in the way a chamber can make a difference in its community, by fostering a better climate for business and bringing like-minded people together to achieve a common goal.

The Chamber is, by its nature, a membercentric organisation, dedicated to building a strong and profitable community that attracts investment. Viewed by many as a local commerce partner, The Bermuda Chamber of Commerce does in fact represent the needs of both the domestic and international business community through its affiliation with the Association of Bermuda International Companies (ABIC).

Advocacy is at the heart of everything we do. Working collectively, or through

our industry-led divisions, members are empowered to positively affect policy reform and change. The Chamber’s relationship with the government is a key driver to our success, but as an a-political organisation we tread a very fine line to ensure that we balance the needs of our constituents against the need to maintain a positive relationship with those holding power, whether as elected officials or civil servants. To maintain that vital degree of separation, the Chamber receives no direct funding from the government, although grants have been and continue to be ceded to fund tourism initiatives.

Networking is another key component of the overall Chamber experience. The opportunity to meet and gather with peers to discuss issues of mutual concern and interest is vital

to the accomplishment of shared goals. The Chamber represents over 700 members in a number of diverse industry sectors. These members are encouraged to participate in Chamber activities through industry specific and geographic divisions. Today, in addition to ABIC and the Economics Advisory Committee, there are currently nine active divisions of The Chamber: Automotive; Business Technology; East End; Printing & Publishing; Real Estate; Retail; Restaurants and Hospitality; West End and Young Professionals.

In the best of times a chamber is valued – in the worst of times it should be seen as essential. These are the worst of times. As real estate is always a key economic indicator, it was no surprise that when housing prices tumbled in 2009 so did everything else. Both commercial and residential inventory is now at an historic high with only 66 properties changing hands in 2011. This, many concede, is probably as much as a four-year supply of office space currently on the market.

The impact on the construction industry is obvious.

The precise number is unknown but anecdotally it is believed that since 2009, more than 4,000 non-residents have left Bermuda. As international business continues to shed jobs, further reductions are reported almost monthly. This has an impact across the local economy, as demonstrated by the decline in the numbers of new cars and bikes imported into the island, reduced electricity generation, fewer containers being landed at the docks, and many empty apartments and

lower rents. All of this contributes to lower economic activity and shows up in declining Gross Domestic Product.

lead on this issue and has already canvased its members for their initial opinion on this matter of national interest.

Meanwhile, since 2008, restaurant owners have been grappling with the tremendous 40 to 50 percent losses experienced in fine dining sector. This industry was the first and hardest hit by the shrinking international business community. Consistent with worldwide trends, our hospitality sector has also experienced steady declines yearon-year, with total revenues and current occupancy rates well behind 2007. Then there is retail, which is working feverishly to stay ahead in the shadow of a deepening recession and increased competition from global online shopping trends.

In January 2012, The Chamber’s Economics Advisory Committee hosted a standing room only roundtable discussion on the state of the local economy, with another planned on ‘how to fix the economy’. The Committee has also prepared a White Paper of Public Debt Management, which is now before the Cabinet Secretary for review.

Throughout this turmoil, The Chamber has continued to position itself as an essential support mechanism. As a direct result of Chamber collaboration and lobbying, both the retail and restaurant sectors have received much needed tax relief. Furthermore, the government has harmonised the duty on personally imported goods, thus supporting the retail sector’s ‘Go Local’ directive.

Immigration reform remains another hot topic and The Chamber continues to speak openly on the need to create a more welcoming and productive business environment – one that fosters growth, investment and long-term commitment.

The government has informed the people of Bermuda that in the not too distant future they will be holding a Referendum on the issue of gaming. The Chamber has taken a

Much has also been done behind the scenes to assist our members in both the east and western ends of the island, to enable them to fully capitalise on current tourism activity. Meanwhile, the Real Estate Division continues to lobby for legislative reform to reverse a decision, which currently prohibits Bermudian land-owners from selling to non-Bermudians and those holding permanent residency status. They are also hoping that the government will abolish the current licensing requirement imposed on Bermudians and their non-Bermudian spouses when purchasing property.

There is always more to be done, but we believe that by demonstrating value through leadership, consistency and accountability, with the strength of our membership behind us, The Chamber will continue to be a leading voice for economic development, growth and prosperity. A perfect fit for imperfect times.

July 2012 • Global Business Magazine • 43

BERMUDA FOCUS

MESSAGE FROM THE CEO There is little doubt that 2011 was an eventful year for Bermuda and the entire international business world. The earthquake in Japan, the Arab spring, the debt debate in the U.S. Congress and the European debt crisis demonstrated once again just how interconnected the global economy is and the resilience of people all around the world.

Cheryl Packwood CEO, Business Bermuda

As we enter 2012, I am filled with a new sense of optimism that we are turning the corner on uncertainty and that people are adapting to a world where events that may be physically far away have a real impact on them.

Learning to deal with uncertainty and adapting are hallmarks of Bermuda’s people and our economy. After all, many residents are in the business of analysing, assessing and insuring risks and designing products that preserve and protect value when the unthinkable happens.

At Business Bermuda, we ended 2011 with an effort by our board to focus on the organization, its strengths, weaknesses, goals and ambitions. We are continuing on in that strategic planning process and will provide updates to our members as our plans develop and further activities unfold.

We are excited to welcome Mr. James Woolsey, the 16th Director of the U.S. Central Intelligence Agency, to Bermuda for our Annual General Meeting. Mr. Woolsey is a different kind of speaker than we have had in previous meetings. He is not a political commentator or politician,

but rather someone who has worked to understand risks, gather information and protect the world from any number of threats He has transitioned into the business world and brings that experience to bear in a manner that will offer insight and a global perspective on the risks and challenges facing the world today. His speech entitled, “Economic Tsunami to Come? Oil, the Failing Grid and the Middle East” will discuss the Arab spring, the challenge of being reliant on an instable part of the world for energy and the uncertainty this causes people and economies all over the world. And, he will relate all of that to Bermuda by offering a message that focuses on challenges and opportunities for Bermuda to participate in the global economy.

This will include the Island’s ability to recognize and insure risks around the globe, provide valuable financial services to Asia, North America and Europe, the opportunity for Bermuda to embrace a more sustainable energy policy that sets an example for the rest of the world, and finally, our ability to be a provider of secure, reliable

and safe global telecommunications infrastructure.

Business Bermuda will move quickly from the Annual General Meeting into an aggressive and active spring with events planned in London and Asia.

As always, our efforts are focused on building the Bermuda brand for international business, establishing an environment in key markets around the world that enhance the opportunities for our members in the legal, accounting, fund, financial services and insurance industries to make connections and grow their businesses. We do all of this with the support, commitment and energy of government.

It bears reminding that one of the greatest strengths of Bermudians is that as we board the plane to fly wherever we are going in the world, we put aside our differences and operate in partnership with one another to help our jurisdiction grow and prosper.

We are coming through a challenging economic time. Our opportunity is to work together to ensure that Bermuda not only sustains its competitive advantage, but builds on it.

The Companies Amendment (No. 2) Act2011 - “Unlocking the entrepreneurial zeal which rests at the very core of the Bermudian success story” The Companies Amendment (No. 2) Act 2011 (the “Amendment Act”) became operative on 18 December 2011 having received assent from His Excellency Sir Richard Gozney KCMG, CVO, Governor of Bermuda.

Steven Rees Davies APPLEBY

Business Development Minister Wayne Furbert, addressing the House of Assembly, stated that “The purpose of the bill [the Amendment Act] is to amend the Companies Act to assist further unlocking the entrepreneurial zeal which rests at the very core of the Bermudian success story and shall be the engine which propels her exciting future”.

Clive langley APPLEBY

This article briefly looks at the core changes introduced by the Amendment Act and questions whether it achieves its above mentioned purpose.

Without question, the Amendment Act represents the first significant amendment to the Companies Act 1981 (the “Act”) since 2006 and is a result of a comprehensive review of the Act undertaken by both the public and private sectors. It

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encompasses improvements inspired by the experience of those who work with the Act on a day to day basis whilst also adopting recent amendments to comparative legal systems onshore, which together, it is hoped, will enhance Bermuda’s edge on rival offshore jurisdictions such as the British Virgin Islands and Cayman. So what are the most important amendments that have been introduced?

SIMPLIFIED ADMINISTRATION With the growing use of corporate directors as an integral part of modern governance in international and cross jurisdictional corporate structures, the Amendment Act has removed the need for directors of Bermuda companies to be natural persons by expanding the definition of a director to include individuals, companies, partnerships and other

associations of “persons” whether incorporated or unincorporated. It has also brought change to the minimum number of directors required to manage a Bermuda company from two individuals to one person. The Amendment Act further allows companies to dispense with holding AG Ms for any number of years by resolution of the shareholders. Each of these amendments has increased the flexibility in convening meetings, executing documents and general transacting of business which will result in improved operational and administrative efficiency and ultimately a reduction in related costs.

TRANSFERS OF SECURITIES The Amendment Act has also simplified the requirements that permit the electronic transfer of securities. The registration of a transfer of securities was formerly

prohibited unless a proper instrument of transfer was delivered to the company or, in the case of securities listed or admitted to trading on an appointed stock exchange, the security was to be transferred by an agent (an “Appointed Agent”) approved by the Minister of Finance. The Amendment Act has abolished the requirement for an Appointed Agent and introduced an exemption from the need to deliver a written instrument for all transfers of securities listed or admitted to trading on an appointed stock exchange. The Act has been further amended to state that nothing in the Act or any rule of law shall operate to prevent securities from being transferred in accordance with the rules or regulations of an appointed stock exchange on which they are listed or admitted to trading.

This amendment ensures that the requirements of the Act do not add to or interfere with the rules and regulations governing the transfer of securities listed on appointed stock exchanges.

BUSINESS ACQUISITIONS The Amendment Act has introduced the familiar, but until now unavailable, concept of merger as a further alternative to the existing regime on amalgamation and other business acquisition models. Under Bermuda law an amalgamation provides for two or more existing companies to amalgamate into one company whereby the amalgamating companies neither cease to continue as before nor cease to exist, but instead continue with the other or others as a new combined and amalgamated company. All undertakings, assets and liabilities of the amalgamating companies vest in the amalgamated company without any one of the amalgamating companies being regarded as the ‘surviving company’.

This model of business combination has proven, and continues to prove, to be very effective (particularly from certain tax perspectives). However, Bermuda has not, until now, provided for the concept of a merger whereby two or more companies merge and one of the merging companies is

recognised as the ‘surviving company’ with the others having been absorbed by that surviving company. Bermuda companies may now merge with one or more Bermuda or foreign companies or corporations, but different to an amalgamation, the undertakings, assets and liabilities of each merging company will vest in the one ‘surviving company’. Expanding the range of business combinations available provides Bermuda and foreign companies with increased flexibility in terms of structuring international and cross jurisdictional acquisitions, takeovers, mergers and amalgamations.

The Amendment Act has also abolished in its entirety the prohibition on financial assistance.

Bermuda companies were previously prohibited from providing any form of financial assistance in relation to the purchase or acquisition of shares in itself, subject to a number of exceptions. This change has removed the costly and time-consuming effort that was often experienced when assessing whether or not a company was providing financial assistance.

This will be a further benefit to many transactions involving the acquisition or restructuring of Bermuda companies in that the question of financial assistance need not even be considered.

Finally the squeeze-out provisions for those looking to compulsorily acquire a Bermuda company have been enhanced. The Act already allowed a person that holds at least 95% of the shares or class of shares in a company to compulsorily purchase the remainder of the shares or class of shares in that company. Such person now has the right to deliver to the company an instrument of transfer executed by a person appointed by the purchaser for and on behalf of untraceable or uncooperative shareholders together with the consideration being paid for the shares.

Such amendments provide additional certainty and security for those seeking to acquire a Bermuda company by way of compulsory acquisition.

In conclusion, it is fair to say that the engine has been stoked. The Amendment Act has made significant changes to the Act, bringing in measured and tangibly beneficial amendments whilst retaining Bermuda’s reputation as a jurisdiction which prioritises the highest standards of corporate governance.

These changes are a good example of how seriously Bermuda takes the matter of being as attractive as possible to international business in a global marketplace which is quick to change and where the competition looks to seize any advantage that it can. Bermuda will need to continue to make improvements to the Act, resulting in more frequent amendments to company legislation, if it wants to maintain this positive momentum. Minister Furbert is right; the Act is at the very core of Bermuda’s success and is an imperative component in assisting to propel Bermuda forward.

• The Amendment Act has removed the need for directors of Bermuda companies to be natural persons by expanding the definition of a director to include individuals, companies, partnerships and other associations of “persons” whether incorporated or unincorporated.

• The Amendment Act has also simplified the requirements that permit the electronic transfer of securities.

• The Amendment Act has introduced the familiar, but until now unavailable, concept of merger as a further alternative to the existing regime on amalgamation and other business acquisition models.

• The Amendment Act has made significant changes to the Act, bringing in measured and tangibly beneficial amendments whilst retaining Bermuda’s reputation as a jurisdiction which prioritises the highest standards of corporate governance.

A SHARIAH-COMPLIANT FUND PLATFORM FOR EMERGING MANAGERS Fawaz Elmalki Conyers Dill & Pearman Limited

C. Buchan Emerging Asset Management Ltd.

The recent uprisings in certain countries in the Middle East have highlighted the need for fund managers and investors in these countries to seek stable fund domiciles. They seek jurisdictions which offer effective legal regimes, tax neutrality, accessible and pragmatic regulators and experienced service providers that are responsive, timely and thorough. As one of the leading offshore fund domiciles in the world, Bermuda meets these requirements.

Bermuda is a British Overseas Territory which has been self-governed since 1968. It has its own legal system which is based on English Common Law with rights of appeal to the Privy Council of the House of Lords in England. The principal corporate legislation, the Companies Act 1981, is updated regularly to keep pace with international commercial developments.

It is internationally recognised as one of the leading offshore jurisdictions for

investment funds.

One of the principal attractions of Bermuda is its reputation. It has been an established financial centre since the 1930s and its client base includes a majority of the Fortune 500 companies.

Bermuda has a free market economy and is tax neutral with no income, profit or capital gains taxes. It is on the OECD’s “White” list and has signed tax information exchange agreements with all G8 countries and many others July 2012 • Global Business Magazine • 45

BERMUDA FOCUS including India and China and it recently entered into a double taxation avoidance agreement with Bahrain.

The Investment Funds Act 2006 and supporting regulations provide the legal and regulatory framework for the authorization, operation, regulation and supervision of investment funds in Bermuda. The principal regulator is the Bermuda Monetary Authority (“the BMA”). The BMA was established in 1969. It authorises, supervises, regulates and inspects investment funds operating in or from Bermuda. It is a full member of IOSCO. Bermuda has no legal or regulatory impediments to the offering of Islamic investment funds. The Bermuda government has promoted the development of Islamic finance in Bermuda and there has been steady growth in the development of Shariahcompliant private equity funds, infrastructure funds and alternative investment funds domiciled in Bermuda, in addition to the traditional real estate funds. Shariah-compliant funds can be established in the same manner as conventional investment funds. The Shariah element essentially operates as an extra set of rules layered on top of the existing regulations that are aimed at a specific group of investors.

The BMA last year issued Guidance Notes that facilitate the establishment of Shariah-compliant investment funds in Bermuda. The Guidance Notes apply to open-ended funds such as mutual funds and hedge funds. The Guidance Notes aim to recognise certain unique features of Shariah-compliant funds

and provide guidance on a number of issues which these funds need to consider, including the appointment and role of the Shariah Supervisory Board, required disclosure in the fund’s offering document (such as risk factors and conflict of interest disclosure) and in the fund’s constitutional documents (such as investment restrictions) and notification of material changes to the offering document.

The Emerging Market Platform - A Shariah - Compliant Funds Solution Recognizing the increasing number of emerging fund managers in the Middle East and the need for a cost-effective platform for these managers, Emerging Asset Management Ltd., a Bermuda incorporated investment manager, has established the Emerging Manager Platform.

The Emerging Manager Platform is a Shariah-compliant structure, established as an open-ended fund and a segregated accounts company which will be regulated by the Bermuda Monetary Authority.

A segregated accounts company provides a legal structure for investment funds that allows the assets and liabilities of each segregated account, which can be set up as a separate sub-fund, to be legally segregated or “ring-fenced” from those of the other sub-funds on the Platform and from the fund’s general account. Each sub-fund may invest in the same or separate asset classes but it operates independently of the other sub-funds. The manager of each sub-fund is able to establish its own track record. This is important as

a successful track record can provide the manager of the sub-fund with the credibility to subsequently launch its own independent fund.

Each sub-fund on the Platform will issue a separate offering document containing its specific investment objectives and restrictions. It will have its own fee structure, subscription and redemption terms and it may engage its own Shariah board or the Platform may engage one Shariah board.

The Emerging Manager Platform offers all the benefits of a regulated fund and a quick, flexible and cost-effective way for managers with investment objectives and strategies that meet Shariah requirements to launch their funds in a recognised offshore jurisdiction without incurring the high costs and commitment of management time and resources required for the establishment of a stand-alone fund.

Conclusion Bermuda is committed to attracting international business by offering political and economic stability, a legal system based on the common law, sophisticated professional service providers and an efficient regulatory system for the investment and financial services industry. Identifying a stable and cost-effective domicile which welcomes Islamic finance is important for an emerging manager who wants to establish a Shariah compliant fund.

The Bermuda-domiciled Emerging Market Platform offers an innovative new structure for such managers which provides them with a quick, flexible and cost-effective way to launch their funds.

THE BERMUDA STOCK EXCHANGE: STRENGTH-TO-STRENGTH 2011 has been an exciting year at the Bermuda Stock Exchange (BSX). Here, BSX President and Chief Executive Officer Greg Wojciechowski tells how his mission to position Bermuda as a leading jurisdiction for the setting up and listing Insurance Linked Securities (ILS) has been paying off, as the Exchange now boasts $3 billion of these listings.

2011 has been an exciting year at the Bermuda Stock Exchange (BSX). Here, BSX President and Chief Executive Officer Greg Wojciechowski tells how his mission to position Bermuda as a leading jurisdiction for the setting up and listing Insurance Linked Securities (ILS) has been paying off, as the Exchange now boasts $3 billion of these listings.

bonds to use Bermuda vehicles was lagging.

As the world’s third largest reinsurance market, home to 1400 insurance companies with total assets of $442 billion, intuitively we could see that Bermuda was a natural place for establishing and listing ILS structures.

2011 was the year that Bermuda made its mark and solidified its position as a leader in servicing Insurance-Linked Securities (ILS) structures.

In fact, many of our reinsurance companies had issued cat bonds or set up special purpose vehicles such as side cars, thus Bermuda had deep experience and knowledge in this area.

While the island has been acknowledged as a centre of excellence for reinsurance for some time, attracting ILS structures such as catastrophe

What it took to launch Bermuda as a more attractive domicile for ILS structures – and listing location – was a change in regulation.

46 • Global Business Magazine • July 2012

Spearheaded by the Bermuda Monetary Authority in consultation with domestic and international industry participants, regulatory changes were enacted in October 2009 that streamlined the process for the incorporation of ILS structures, expediting the time for these structures to get to market.

In essence, the amendment brought in 2009 applied to Class 3 insurance incorporation legislation and clarified the rules for creation of these special purpose vehicles, made their creation straightforward, and significantly reduced the time it took to get these vehicles to market.

The regulatory changes established a new designation of ‘special-purpose

insurers’ (SPI) as part of the Bermuda Monetary Authority’s licensing and supervisory framework. This change has been a very positive step in encouraging SPI’s to set up in Bermuda.

The timing, it seemed, was ideal as alternatives to traditional reinsurance capital formation grew coupled with investors looking for exposure to an asset class that was not correlated with the broader capital markets. It appeared that we had prepared and positioned Bermuda and the BSX in the right way at the right time.

Team Bermuda went on roadshows, holding a variety of meetings in New York, London, Canada and around the globe to re-acquaint the markets with Bermuda and these changes – and it has really paid off.

The BSX has been promoting the fact that listing securities on an internationally recognised stock exchange such as the BSX makes the securities significantly more attractive to potential investors, such as pension and dedicated funds, and have been encouraging companies to set up not only structures such as cat bonds here, but also to list them on the exchange.

2010 was a significant year for us in that we were successful in establishing name recognition in this space, and in July 2010, the BSX announced it had cat bond listings valued at over $1 billion for the first time.

In 2011, we saw continued traction.

The BSX again broke its record for

ILS listings, reaching the milestone of $2 billion, and then, for the first time, reaching over $3 billion in listed securities by the end of 2011.

Twenty five ILS listings with a total value of $3.373 billion were listed on the exchange as of December 31, 2011.

The BSX’s 25 listed insurance linked securities were made up of: four securitization programs, 13 notes issued pursuant to these programs, six notes issued as stand-alone securities, and two specialist exchange trade fund classes.

In the same year, the exchange marked its 40th anniversary and saw the investment in the BSX by the TMX Group, the owners of the Toronto Stock Exchange.

We really do feel we have achieved a great deal in the last two years in the ILS space.

The SPI designation has been very successful. According to the Bermuda Monetary Authority, 23 special-purpose insurers had been formed in Bermuda by 31 December 2011, and the majority of these formations were for side cars, while others had been created to issue catastrophe bonds. In 2010, 10 were formed during the whole year.

In January 2011, Chartis, the property and casualty insurance unit of American International Group, listed a $450 million catastrophe bond through Compass Re on the BSX. Munich Re gained extra capacity through Queen

Street IV Re’s issuance of a $100 million BSX-listed catastrophe bond in November.

The last ILS to list in 2011 was Lloyd’s insurer Amlin’s first cat bond, the $150 million Tramline Re, on December 22.

At the Exchange, we are looking to provide capital market support to the developing ILS market segment..

Institutional investors such as pension and dedicated funds are interested particularly in ILS because of the low correlation between ILS and capital markets. ILS are a natural hedge to capital markets, and listing on the exchange gives them more security and visibility, which investors are seeking especially in times of high market risk periods.

And as we move forward into 2012, indications are that interest in catastrophe bonds will continue and issuances will be met in the market with similar take up. We have developed critical mass in respect of listings and incorporations in Bermuda and atrack record for quick turnaround times for setting up SPIs and cat bonds, so we expect to be even busier this year.’

What is a catastrophe bond ?

Catastrophe bonds enable insurers to raise capital through the transfer of insurable risk for events such as hurricane or earthquake damage via capital market vehicles. They have been popular with investors, while their prices have remained attractive for sponsors of the bonds.

TMX Group Makes Investment in The Bermuda Stock Exchange Canada’s Income Tax Act, effective October 31, 2011. ”This investment represents TMX Group’s commitment to looking beyond Canada for opportunities,” Mr. Kloet said. “BSX and TMX Group both have a culture of continually striving to innovate and offer our clients enhanced products and excellent customer service. I am certain we will be well aligned as we consider future initiatives together.”

TMX Group Inc. (TMX Group) and Bermuda Stock Exchange (BSX) announced in December 2011 that TMX Group has purchased a 16% minority stake in the BSX. TMX Group is now one of the largest shareholders of the BSX, and Tom Kloet, CEO, TMX Group, will be joining the BSX board of directors.

To celebrate, Greg Wojciechowski, President and CEO, BSX and Susan

Stirling, Marketing Director of Business Bermuda joined Mr. Kloet to open trading on Toronto Stock Exchange.

The announcement comes at a time of increased business activity between Bermuda and Canada. Most notably, a Tax Information Exchange Agreement was signed between the two countries earlier this year, effective July 1, 2011.

In addition, the BSX gained recognition as a Designated Stock Exchange under

Mr. Wojciechowski added: “I’m delighted to welcome TMX Group as a BSX shareholder and Tom Kloet to our board of directors. Canada and Bermuda share a long history and important jurisdictional ties, this strategic investment can only strengthen this long standing relationship. We look forward to exploring new avenues of economic development and mutually beneficial cooperation in our domestic and international capital markets.”

July 2012 • Global Business Magazine • 47

BERMUDA FOCUS

Bermuda – Moving with the Times to Stimulate the Economy Themis Law Chambers P. O Box Hm 695 Hamilton HM CX Hamilton Bermuda Telephone: 1(441) 298-0181 zdaniels@tlclawonline.com www.tlclawonline.com

As one of the smallest countries in the world, Bermuda lies about 650 miles east of the USA. The capital, Hamilton, houses some of the world’s largest international companies and corporations who have chosen Bermuda as their offshore domicile – for good reason.

In addition to a democratic government, low personal and corporate taxes, Bermuda’s international business economy is highly developed and is one of the world’s largest exporters of financial services – primarily insurance, reinsurance and investment funds.

While the threat of a global recession loomed in 2008, several predictions were made as to whether Bermuda would follow suit. However, while focused on the global recession

The Rise of the Insurance Linked Securities Market The perfect storm of tepid global growth, volatile markets and historically low interest rates has pension funds and other institutional investors desperately searching for a way to generate meaningful returns.

More and more of these investors are turning to insurance linked securities (‘ILS’) as a potential solution.

ILS are securities or contracts which provide a rate of return depending upon the non-occurrence of defined catastrophic events such as hurricanes or earthquakes.

Typical ILS include Catastrophe Bonds (‘Cat Bonds’) or a portfolio of collateralised reinsurance contracts. The ILS market provides (re) insurers with an additional risk-transfer mechanism, investment managers with an additional service offering to grow assets and investors with a compelling alternative investment proposition uncorrelated to the markets, interest rates or the global economy.

Home to several of the world’s largest reinsurers, Bermuda boasts a long investment fund history. As a result, the island is ideally suited as a jurisdiction in which to establish and service an investment fund devoted to investing in ILS. However, despite its attractiveness, this asset class also comes with its own challenges. Matching fund liquidity to the investment cycle of the underlying ILS portfolio is difficult, particularly if a catastrophic event occurs which results in the impairment of a portfolio asset. Traditional fund mechanisms for restricting liquidity, such as lock-up periods and gates, generally do not work well in the ILS fund context.

This has given rise to innovative solutions, such as the ‘slow pay’ redemption provisions, which are better suited to the asset class and provide investors with more certainty. Side pockets can also be used to effectively segregate impaired assets from the main portfolio to ensure that new investors do not participate in any previously impaired assets.

However, their use does raise other issues, namely their impact upon performance fees. Several

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and the impact on the local economy, Bermuda failed to carefully consider the negative implications their own policies and legislations were having on their international business sector. Furthermore, the problem no longer appeared to be the spiral effects emerging from a global perspective but was now just specific to Bermuda. As a result, the international business sector has lacked confidence on many levels and has sought to do business elsewhere, thereby driving Bermuda into a recessionary state parallel to that of the USA. However, all is not lost! Bermuda is aware of the negative impact some of these restrictions have had on the local economy – in particular, the rule that requires any company in Bermuda doing business locally to be owned 60% by Bermudians. This 60/40 restriction was put in place to preserve Bermudian resources in terms of business ownership, and certainly, where the

options have been devised in order to strike the appropriate balance between the interests of investors and managers.

Analysing each and choosing the most appropriate method for the particular type of fund is an important element of fund structuring.

The key to successfully navigating such challenges is to engage experienced service providers who are not only well versed in the specific nuances of the asset class, but can add real value when structuring the fund vehicle. Fund managers who want to make a good first impression with investors, need to have thoughtfully considered the various options in the fund design, and be able to articulate why a particular option represents the best investment alternative.

Prime Management is a Bermuda-based hedge fund administrator which has a dedicated service team who has been focused on servicing the specialized and evolving requirements of investment structures, sponsors and managers in the ILS market for the past 10 years.

government deems fit they will continue to do so. However, they believe that in today’s economic climate, Bermudian companies would find it easier to raise capital in the global markets if the investors could have a controlling interest. Recognising that the traditional ways of doing business can no longer apply, for Bermuda this is stimulation at its best. Going forward, local businesses will now have the opportunity to raise capital from foreign investors, who in turn will benefit by having control in relation to their investment. It is hoped that this discretionary relaxation of the rules will welcome new businesses to the island.

With a flexible approach, well aligned with current global business trends, Bermuda is changing the way they attract foreign investment. For a laidback island paradise steeped in pure relaxation, the time to act is now.

Prime Management Limited John Whiley Head of ILS Fund Administration Tel: (441) 295-0329 ext 512 johnwhiley@primebermuda.com www.primebermuda.com

Michelle Wolfe, CA Managing Director Meritus Trust Company Limited 8 Par-la-Ville Road Mintflower Place, 2nd Floor Hamilton HM 08, Bermuda

Tel: +441 405 9870 Fax: +441 405 9871 info@MeritusTrust.com www.meritustrust.com

Meritus Trust Company Limited – Providing Unparalleled Fiduciary Services in Bermuda

As a jurisdiction, Bermuda is recognised for being a worldwide leader in providing premium offshore trust services.

Based on English common law and the doctrines of equity and acts passed by the Bermuda legislature, the legal system is uncomplicated and free of the cumbersome restrictions imposed by the excessive legal, supervisory and regulatory restraints found in other countries.

Meritus Trust Company Limited is an independent trust company based in Bermuda.

Founded in 2010, we have one simple objective – to provide unparalleled fiduciary services to a select group of international families and charities.

Our People Meritus Trust is the nucleus of the trust, accounting and legal profession in Bermuda. Our

founders have attracted and retained the best of the industry, surrounding themselves with a team that shares the same passion for providing superior trustee services. While bigger institutions may sometimes have difficulty with the ‘revolving door’, we hand select each member for a long-term career.

We also provide a collegial, supportive and stimulating environment, which makes it easy for our staff to love what they do and excel. Even our families can see that our team enjoys going that extra mile to exceed their expectations.

As we are completely independent of banks, investment managers, legal and accounting firms or other institutions, we bring a fresh new perspective to the industry in Bermuda. We do this by providing pure fiduciary services that are completely free from any real or perceived conflict of interest.

providers, our model facilitates a cost effective solution for most families who have their own professionals providing legal, accounting, investment, family office or other services.

Our Speciality Bringing together over 100 years of trust and fiduciary experience, our talented team specialises in trustee and protector services, administration for private trust companies, family office services, company administration services, as well as education and governance.

quicker and less expensive than ever before. The firm utilises Microgen’s 5Series (a cutting-edge trust and company administration platform) and a SharePoint based portal that employs state-of-the-art security/ encryption. They also use technology designed to improve efficiency, including OCR software, speech/handwriting recognition and document assembly.

Our Technology Meritus Trust uses technology to deliver a superior product,

While we have a comprehensive network of professional service

“

Each man is capable of doing one thing well. If he attempts several, he will fail to achieve distinction in any Plato

“

“Each man is capable of doing one thing well. If he attempts several, he will fail to achieve distinction in any.” Plato

July 2012 • Global Business Magazine • 49

SPOTLIGHT ON CYPRUS

Spotlight on Cyprus The Role of the Cyprus Securities and Exchange Commission The Cyprus Securities and Exchange Commission (CySEC) is the independent public regulatory and supervisory Authority of the securities market of the Republic of Cyprus – one of five authorities supervising the financial sector. The CySEC was established in accordance with section 5 of the Cyprus Securities and Exchange Commission (Establishment and Responsibilities) Law of 2001. It is assigned the responsibility for the overall supervision of the securities market and the transactions in transferable securities carried out in Cyprus. The scope of the supervision also extends outside the Republic, with regard to transactions carried out by investment firms that are under the supervision of the CySEC. The CySEC’s role is to protect the investors through ensuring market integrity, the effective and fair operation of the securities market, and the steady development of the securities market.

Entities Under CySEC Supervision Entities under the supervision of CySEC include investment firms; regulated markets; companies with securities listed on regulated markets; Undertakings for Collective Investment in Transferable Securities (UCITS) and their management companies; and Credit Rating Agencies (CRAs) through delegation from the European Securities and Markets Authority (ESMA). ESMA is an independent European Supervisory Authority that contributes to safeguarding the stability of the European Union's financial system, by ensuring the integrity, transparency, efficiency and orderly functioning of securities markets, as well as enhancing investor protection. In particular, ESMA fosters supervisory convergence both amongst securities regulators and across financial sectors, by working closely with the other European supervisory authorities competent in the field of banking (European Banking Authority - EBA), and insurance and occupational pensions (European Insurance and Occupational Pensions Authority EIOPA).

A Brief Overview of the Supervised Entities Cyprus Investment Firms (CIFs) These are companies that operate under an authorisation granted by the CySEC, to provide one or more investment services to third parties and/or to perform one or more investment activities on a professional basis.

The range of investment services CIFs offer

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include the reception and transmission of orders on behalf of clients; the execution of orders on behalf of clients; dealing on own accounts; portfolio management; investment advice; the underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis; the placing of financial instruments without a firm commitment basis; and lastly, the operation of Multilateral Trading Facility (MTF) Despite the recent financial crisis, the interest for setting up CIFs is high and has remained undiminished for many years. While only 18 licensed CIFs were in operation in 2003, today the number has grown to 119. In addition to this, there are a substantial number of applications for CIF licenses under review at the CySEC, therefore the total number of licensed CIFs will grow in the next months and is expected to continue growing over the coming years.

The CySEC receives on average 30 applications for granting CIF authorisation per year – around two thirds of which concern the setting up of CIFs for the provision of foreign exchange (FOREX) trading services. The CySEC's decision to proceed promptly and proactively with the regulation of the FOREX market has certainly facilitated these developments. According to the relevant EU Directive (MiFID), the CySEC has recently decided that the binary options will also be considered financial instruments, which means that investment companies that wish to offer investment services in this financial instrument are to be licensed and regulated by the CySEC. Regulated Markets The Cyprus Stock Exchange (CSE) offers various advantages for companies wishing to list their financial instruments. It is a recognised EU exchange that is open to any domestic and foreign private or public company that wishes to draw capital and reduce their dependence on the traditional credit institutions in order to develop and expand their activities. To further facilitate the listing of companies, the CSE has further introduced the Emerging Companies Market (NEA), which allows for companies to list their shares through simplified procedures and at considerably lower costs. This is a non-regulated market and is authorised by CySEC as a Multilateral Trading Facility (MTF).

Listed Companies At present, there are 119 companies listed on the CSE in Cyprus. Investors in the listed Cyprus companies benefit from the low taxation rate of 10% applied on net profits of companies and from no withholding tax on dividends declared to non-residents.

This is in addition to the double taxation avoidance treaties that Cyprus has signed with more than 50 countries worldwide. The listing of companies in the CSE has many advantages for both foreign companies and investors, due to the very competitive listing fees, the efficient infrastructures, the skilled personnel, the access to EU market and the multitude of tax incentives. Such incentives also include the zero capital gains tax on profits from sale of shares, exemption of dividend income from taxation, the EU-wide low 10% corporate tax and the many double tax treaties.

Undertakings for Collective Investment in Transferable Securities (UCITS) A UCITS management company is a company authorised to manage undertakings for collective investment in transferable securities. This refers to the open-ended undertakings for collective investment in transferable securities and/or other liquid financial assets. This is using capital raised from the public and which operates on the principle of spreading risk – the units of which are, at the request of holders, redeemed directly or indirectly out of this undertaking’s assets.

The arrangement of the national legislation with the UCITS IV Directive of the European Union creates a modern and flexible regulatory framework that enables the growth of the UCITS sector in Cyprus.

UCITS IV Directive provides for a number of important changes: Firstly, it extends the ‘Passport’ of the management company to include the possibility of setting up a UCITS in another EU member state which is licensed and supervised by the supervisory Authority of the host state, while directly managed by the management company without the need to maintain a local office. Secondly, it simplifies the ‘notification procedure’ for the marketing of UCITS in other member states which speeds up the process and operates similarly to the cross-border provision of financial services. This is done through an electronic notification between the two supervisory authorities. Thirdly, it enables

the cross border mergers of UCITS through transparency and other requirements for the merger that are common to the whole of the European Union. Fourthly, it introduces the Key Investor Information Document (KIID) which replaces the simplified prospectus and provides key information to the investors in a brief and straightforward manner. Lastly, it allows for many other improvements related to better cooperation between the national supervisors for the consistent application of the regulatory framework and the maintenance of a high level of investor protection across the EU.

directly out of the assets of the scheme. The Law of International Collective Investment Schemes (ICIS) is also being reformed to incorporate the latest developments in the regulation of Collective Investment Schemes.

The ICIS, now under the supervision of the Central Bank of Cyprus, comes under the supervisory umbrella of the CySEC, thus bringing all types of collective investment schemes under the same roof, which enhances the growth of this sub-sector.

Currently, there are around 80 ICIS in operation that are soon to be regulated by the CySEC.

Cyprus is rapidly growing as a centre for private investment funds due to many comparative advantages, such as there is no capital gains tax on profits from sale of financial instruments; dividend income is exempt from tax; interest income is taxed at 10% corporate tax but is exempt from defense tax; the liquidation of a UCITS is not taxable for non-tax-resident investors; lastly, there is no tax on deemed dividend distribution for non-tax resident investors. Double tax treaties with more than 50 countries include the UK, Mauritius, India, Russia, China and the USA.

Fiduciary Companies

While UCITS Management Companies are subject to a unified corporate tax rate of 10%, there is also no VAT on management fees.

Credit Rating Agencies The CySEC is also responsible for the supervision of the two registered Credit Rating Agencies (CRAs) through delegation from ESMA. As a result of current developments and decision taken by the CySEC, the extended spectrum of CySEC supervised entities also includes or will soon include: Alternative Investment Funds These encompass a wide range of investment funds that are not already regulated at EU level by the UCITS Directive. They include hedge funds, private equity funds, real estate funds and a wide range of other types of institutional fund. Well ahead of other jurisdictions, the new legislation for the Alternative Investment Fund Managers is also being prepared, to give Cyprus a competitive advantage for attracting companies that manage alternative investment funds, such as Hedge Funds, Private Equity Funds and non-UCITS. This law transposes the EU Directive on Alternative Investment Fund Managers – the latter aiming to create a comprehensive and effective regulatory and supervisory framework for the Managers of Alternative Investment Funds, applicable in the entire EU. International Collective Investment Scheme This means an international fixed capital company, variable capital company, unit trust scheme or an investment limited partnership – the sole object being the collective investment of funds of unitholders, the units of which are at the option of unit-holders redeemed or repurchased

These provide administrative and advisory services within the framework of the management of companies. The CySEC is responsible for the licensing and supervision of the companies providing fiduciary services, thereby ensuring a more wideranging supervision, which enhances the reputation of Cyprus as a well-supervised financial destination.

EU and International Dimension Being a member of the European Union (EU), Cyprus has fully transposed the EU Acquis into the national legal framework and is actively following up on the developments, transposing new EU legislation within the transposition deadlines.

Furthermore, the CySEC maintains close ties with competent Authorities on an international level. The need for close cooperation between national supervisory Authorities is considered vital and for this purpose, the CySEC has signed more than 15 bilateral Memoranda of Understanding, as well as the ESMA and International Organisation of Securities Commissions (IOSCO) Multilateral Memorandum of Understanding.

As Cyprus is to take over the Presidency of the Council of the European Union for the first time later on this year, one of the immediate priorities of the CySEC is to contribute to Cyprus meeting the expectations that this important role entails. The CySEC is called to perform a key role during the Cyprus Presidency of the EU Council. It involves a constructive contribution to the reshaping of EU financial legislation with the aim of strengthening the integrity of the financial sector on a EU-wide scale.

The CySEC is strongly committed to this role, which involves the responsibility to chair, support and co-ordinate approximately 12 EU Council working groups dealing with financial issues. There is a lot of work to be done and the CySEC has been preparing for several months. The priorities include reshaping crucial pieces of legislation such as Capital Requirements Directive and Regulation (CRD/CRR), Markets in Financial Instruments Directive and Regulation (MiFID/MiFIR), Credit Rating Agencies Regulation (CRA III), Market Abuse Directive and Regulation (MAD/MAR), Central Securities Depositories (CSD), UCITS V and Transparency Directive. To this end, the

CySEC has already seconded an officer to the Permanent Representation of Cyprus in Brussels, to handle issues regarding the EU financial services working groups, at the same time as closely cooperating with the Ministry of Finance for the better coordination and preparation for the upcoming presidency.

More information about the CySEC and its activities can be found at www.cysec.gov.cy.

You can also find out more information on the advantages of doing business in Cyprus on the Cyprus Investment Promotion Agency (CIPA) website: www.cipa.org.cy or on the Cyprus Stock Exchange website: www.cse. com.cy.

Profile of Mrs Demetra Kalogerou, Chairman of the Cyprus Securities and Exchange Commission Mrs. Demetra Kalogerou was appointed to the position of the Chairman of the Cyprus Securities and Exchange Commission in September 2011. Her previous working experience includes working for the Cyprus Stock Exchange as a Senior Officer, where she was responsible for the Registration and Trading of Companies on the Cyprus Stock Exchange (CSE). Her responsibilities extends to the areas of supervision, securities trading and the various markets of the CSE, the monitoring of the compliance of the listed public companies with their continuous obligations, research and new product development, as well as operation and promotion of financial markets. She has made many presentations in educational seminars on the operation of the CSE and the importance of investor protection, as well as the overall operation of the securities market.

In her 15 years of working at the CSE, she acquired an in-depth knowledge of all aspects of the securities market and gained comprehensive experience in matters relating to the smooth and orderly development of securities markets and the protection of investors. Mrs. Kalogerou holds a Bachelor's degree in Economics and Business Administration (University of Wales, UK), a Master’s degree in Economics of Public Policy (Leicester University, UK) and a Graduate (MPhil) in Finance (City University Business School, UK).

Profile of the Cyprus Securities and Exchange Commission The Cyprus Securities and Exchange Commission (CySEC) is an independent public supervisory Authority assigned the responsibility for the overall supervision of the securities market and of the transactions in transferable securities carried out in the Republic of Cyprus. As one of the five Authorities that supervise the financial sector of Cyprus, its aim is to ensure high standards of investor protection, to safeguard the integrity, fairness and transparency of the operation of the securities market, as well as to promote the steady development of the securities sector.

More information about the responsibilities and powers of the CySEC is available at www.cysec.gov.cy.

July 2012 • Global Business Magazine • 51

SPOTLIGHT ON CYPRUS

The Prominent Role of Cyprus Shipping

Located at the crossroads of three continents, Cyprus recognised as early as 1963 the political, economic and social importance of shipping. Since then, successive governments implementing the correct policy, have managed to develop the island into a fully-fledged shipping centre, combining both a sovereign flag and a resident shipping industry, renowned for its high quality services and standards of safety.

Responsibility for the development of maritime activities lies with the Ministry of Communications and Works. Its authority and jurisdiction are exercised through the Department of Merchant Shipping whose activities include: the registration of ships, administration and enforcement of the Merchant Shipping laws; the control of ships and enforcement of international conventions ratified by the Government of Cyprus (the ‘Government’); the protection of the marine environment; the vessel traffic monitoring in the sea around Cyprus and information system implementation; the monitoring of living and working conditions on board Cyprus ships; the registration, training and certification of seafarers; the control of coastal passenger vessels and small craft; the investigation of marine accidents; the continuous updating of the merchant shipping legislation and its harmonisation with that of the European Union; the coordination of the EU Integrated Maritime Policy; the administration of the State Aid Scheme for Maritime Transport and the Tonnage Tax System; and lastly, the promotion of Cyprus as an International Registry and base for international maritime operations.

The Cyprus flag is a high quality flag, offering numerous quality, service and economic benefits to shipowners who register their vessels in the Cyprus registry.

Quality and Service Firstly, an EU flag classified in the White Lists of the Paris and Tokyo MOUs and excluded from the ‘List of Targeted Flag States’ of the US Coast Guard, results in fewer inspections of the ships and less delays at the ports of both MOUs and of the USA. Secondly, there are maritime offices in New York, London, Rotterdam, Piraeus, Brussels and Hamburg, all offering services to Cyprus ships. Thirdly, there are bilateral agreements of cooperation in Merchant Shipping with 23 countries, through which Cypriot ships receive either national or favoured nation treatment in the ports of other countries. Such agreements with labour supplying countries provide for specific terms of employment and resolution of labour disputes, which are beneficial to both the shipowners and the seafarers. Lastly,

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there is the efficient provision of services by the Department of Merchant Shipping at all times.

Economic Benefits There is no tax on profits from the operation or management of a Cyprus-registered vessel, on dividends received from a vessel owning company, or on capital gains from the sale of a vessel. There is also a new tonnage tax system that extends the benefits applicable to owners of Cyprus flag vessels and ship managers, as well as to owners of foreign flag vessels and charterers. In addition to this, there is no income tax on the wages of officers and crew; low set up, registration and operating costs for companies; a favourable tonnage tax scheme based on ship’s net tonnage; no stamp duty on ship mortgage deeds or other security documents, and lastly, protection for financiers and mortgagees. A member of the Eurozone, Cyprus also has treaties on the avoidance of double taxation with 43 countries.

As a fully-fledged maritime centre, Cyprus is considered one of the leading thirdparty shipmanagement centres in the world. As a result, a significant number of shipmanagement companies have been established in Cyprus and manage a sizeable proportion of the merchant fleet, as well as a large number of vessels under foreign flags.

Among the ship management companies established and operating in the Republic of Cyprus, 87% are Cypriot and EU interests, employing almost 40,000 seafarers, of whom 5.000 are EU nationals. Furthermore, several of the shipmanagement companies operating in Cyprus, rank among the largest of their kind in the world.

The Cyprus Registry ranks tenth among international fleets and third within the European Union. The Government’s Maritime policy is established on three pillars – quality, competitiveness and reliability. Maintaining a high quality fleet and effectively implementing internationally applicable safety, security and environmental protection standards, is the foundation on which Cyprus builds its reputation as a serious maritime flag.

For further information and updates please refer to: Department of Merchant Shipping www.shipping.gov.cy maritimeadmin@dms.mcw.gov.cy

On 24th March 2010, the new Cyprus Tonnage Tax System was approved by the European Commission, as being compatible with the requirements of the EU Acquis, in accordance with the relevant guidelines on State Aid to Maritime Transport.

The Merchant Shipping (Fees & Taxing Provisions) Law, which incorporates the new system in the national legislation, was enacted on the 14th May 2010 and was applicable as from the 1st January 2010. The main objective of the approved scheme was to align the two existing State Aid schemes regarding Cyprus Shipping, namely the tax alleviation for shipowners of ships registered in the Cyprus Register and for shipmanagement companies operating in Cyprus with the European Acquis.

At the same time, the approved scheme adopted two new tax alleviation measures fully aligned with the EU Acquis – one for shipowners of foreign vessels and one for charterers.

The new tonnage tax system is available to any owner, charterer or shipmanager who owns, charters or manages a qualifying ship engaged in a qualifying shipping activity.

However, those participating in the tonnage tax system are exempt from income tax and pay tonnage tax calculated on the net tonnage of the ship, according to a broad range of size categories and rates prescribed in the legislation. This system secures a long-term and stable fiscal environment for shipping in Cyprus. It not only provides a new impetus for the whole shipping industry of the island and creates great prospects for future growth; it provides Cyprus with a competitive advantage. It does this by improving the

already strong position of the country in the shipping world, and promoting as both an international ships’ registry and a high quality maritime centre.

In addition to this, the Government has adopted a series of measures in order to firstly, maintain high safety standards for the Cyprus merchant fleet, and secondly, to minimise the number of marine accidents.

Age limits have therefore been set for the registration of certain categories of ships and strict requirements have to be fulfilled at the time of registration. Furthermore, independent inspectors have been set up to provide a global network of adequate coverage. As a result, the effective implementation of these measures have enabled Cyprus to achieve and maintain a ‘White List’ status in the flag assessment system, maintained by the Paris and the Tokyo MoUs on port state control. It has also allowed the republic to be removed from the ‘List of Targeted Flag States’ of the U.S. Coast Guard.

However, the shipping industry and the seafaring community have become increasingly concerned as a result of the continuing activities of pirates. As a result, the Department of Merchant Shipping has issued a number of circulars providing advice to ships on how to avoid, as far as possible, piracy attacks. However, in view of the continuous deterioration of the situation, new legislation has been enacted regulating,

among others, the use of armed guards onboard Cyprus Flag ships in high-risk areas.

The Government also attaches considerable importance to the improvement of living and working conditions of seafarers on board Cyprus ships, in accordance with the international conventions currently in force. At the same time, action has also been taken for the continuous improvement of the existing infrastructure, the incentives available to both residents and non-residents, and the enhancement of the international reputation of the Cyprus flag as a ‘flag of progress’.

Today, Cyprus is an active member of all international organisations regulating shipping, such as the International Maritime Organisation, the International Labour Organisation, the European Council and the Commission. Representatives of the Department of Merchant Shipping have also been elected to significant positions to these organisations – a fact that demonstrates the key role Cyprus plays in international shipping. The presence of Cyprus in these international maritime fora strengthens the island’s entity and image, at the same time as ensures that it maintains a strong voice.

July 2012 • Global Business Magazine • 53

SPOTLIGHT ON CYPRUS

Patrikios Pavlou & Associates LLC Patrician Chambers, 332 Agiou Andreou Str., 3035 Limassol, Cyprus P.O.Box 54543, 3725 Limassol, Cyprus Tel: +357-25871599, Fax: +357-25344548 info@pavlaw.com, www.pavlaw.com Stavros Pavlou, Senior & Managing Partner Co-author: Angeliki Epaminonda, Advocate-Legal Consultant

Cyprus and the Licensing of CIFs Cyprus continues to focus on providing an excellent business climate for global investments, generating interest from having a well-known favourable tax regime and a European Union membership. With the introduction of the EU Markets in Financial Instruments Directive (‘MiFID’) and the codification of the same under Cyprus law (Investment Services and Activities and Regulated Markets Law of 2007 – referred to as ‘Law 144(I)/2007’ or ‘Law’), the Cypriot investment industry has also opened a significant two-way gateway to both EU and Non EU investors. The focal points of attraction for foreign investors are the low corporation tax rate that is currently maintained at a rate of 10%, and the Republic of Cyprus being used as a basis for access to the European Union.

employees of the CIF applicant.

However, in order for a Cyprus company to be permitted to provide one or more investment services to third parties or/and perform one or more investment activities, it must be granted a license to register as a Cyprus Investment Firm (‘CIF’) by CySEC. The licensing process is regulated by Directive 2004/39/EC, Law 144(I)/2007, and the relevant guidelines issued by CySEC. It is a prerequisite under the Law that any company seeking a CIF authorisation must be established in Cyprus with head offices in the Republic. There is also a requirement to retain the initial capital of the company above the threshold levels outlined, which constitutes an ongoing obligation, not only while authorisation is granted but at all other times. Section 10 of the Law specifies the minimum issued and the fully paid share capital required – depending on the nature of the CIF’s core activities.

The above provisions demonstrate the high level of supervision and control over a CIF’s structure and performance required.

However, the efficiency of CySec, combined with our highly experienced team at Patrikios Pavlou & Associates LLC and the support of our professional associates who are leading experts in the field, means we can assist any prospective applicant towards the effective compliance and operation of CIFs.

It is also worth noting that the people who manage the company’s business have a good reputation and be sufficiently experienced.

Should the CIF applicant fail to convince CySEC of this, the licencing application may be rejected. As such, the CIF applicant must inform CySEC of the identities of the shareholders of the proposed company and satisfactorily show that they are suitable persons to be its shareholders. Furthermore, these requirements also extend to the

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In addition to this, section 18 of the law imposes certain organisational requirements which include, inter alia, the establishment of adequate policies and procedures that enable the CIF to fully comply with the legal requirements, particularly in relation to: maintaining effective organisational and administrative arrangements for the avoidance of conflicts; taking reasonable steps in ensuring the continuity and regularity in the CIF’s performance; having robust governance arrangements and a clear organisational structure; and lastly, having sound administrative and accounting procedures and internal control mechanisms.

How We Can Help

Firstly, our lawyers can assist you across the board with the formation and the maintenance of a Cyprus company; our associate company, PageCorp Groupoffers in Cyprus – and in other jurisdictions – a broad spectrum of corporate services.

Secondly, our Capital Markets department has completed and participated in numerous innovative and ambitious projects. This makes Patrikios Pavlou & Associates LLC well positioned to provide specialised support to our clients. We also offer professional services in the fields of both debt and equity capital markets, with specialisation in multinational and cross-border legal work. Areas of practice include: assistance in listing and flotation of securities; arranging for public offerings and listings of securities on key international stock exchange platforms; compliance with applicable rules and

regulations in relation to public offerings and listings; advising on and coordinating private offerings and placements of securities; and lastly, advising in relation to the rights of security holders.

Stavros Pavlou, our Senior & Managing Partner, is an experienced consultant and specialises in cross-border securities, with extensive involvement in the transactions of multinational private and public companies.

He has handled the listing of large companies in the Cyprus Stock Exchange and in major stock exchanges such as LSE, AIM and a first-ever listing of a Cyprus company in the Hong Kong Stock Exchange (HKSE).

Our Profile With 49 successful years behind us, today we are a multi-award winning international law firm based in Cyprus. Our clients receive distinctive advice on corporate & commercial law, mergers & acquisitions, banking & finance law, capital markets, litigation & dispute resolution, tax law & international tax planning, real estate, trusts & asset protection, intellectual property, IT, internet & e-commerce, administrative & constitutional law and ship registration.

Our firm is also a member of various professional international bodies, and has an esteemed network of associates worldwide, with particularly strong links in Europe, Russia, Middle East and Asia.

Our clients include public and private companies; major local and international banks; multinational corporations that have their regional hub in Cyprus; institutions; entrepreneurs; and a host of individual clients from Cyprus and abroad. Over the last few years, we have been recognised worldwide as a top performance firm in respect of our professional legal services.

Our aim at Patrikios Pavlou & Associates LLC is to provide clients with high-quality legal advice with integrity, professionalism and practical guidance, covering the full range of business activities in respect of both domestic and international transactions.

July 2012 • Global Business Magazine • 55

CORPORATE RECOVERY & INSOLVENCY

Corporate Recovery & Insolvency The Role of Insolvency Practitioners in Keeping a Stable Economy Following a number of high profile collapses in the retail sector, the role of Insolvency Practitioners (‘IPs’) has come to our attention.

We ask what role exactly do IPs play in our economy and, by extension, whether we need aneffective insolvency regime for the economy to function. Are business failures simply part of a healthy entrepreneurial economy?

According to the Centre for Economics and Business Research (‘Cebr’), the insolvency industry‘plays a vital role in maintaining a business environment in which creditors are willing to lend, entrepreneurship is encouraged and the economy can flourish.’Here lies a fundamental question – what type of economy do we want?

Our insolvency regime reflects the desire of policy makers, dating back to the introduction of the Enterprise Act (‘the Act’) in 2002, to encourage a culture whereby entrepreneurship is encouraged – where business leaders are allowed to try and, occasionally, fail. The purpose is to enhance the policy of creating a ‘rescue culture’, so

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that the underlying business of insolvent companies, as far as possible, can be saved before their assets are distributed to creditors.

In essence, the Act has made substantial amendments to administration procedures for failing companies.

This is also reflected within the retail industry, wherecurrently on average, of thosebusinesses which go into administration, 50% of the stores and 50% of the jobs within the business survive. This is a marked improvement on 2010, when more people lost their jobs with companies that were already ‘dead and buried’, such as Woolworths and Land of Leather. As shopping habits undergo fundamental change, this shedding of stores is likely to continue for the foreseeable future,as there are some real problems in the retail sector to be worked through. However, at least today we are witnessing more of a ‘recycling’ than a ‘massacre’ on Britain’s high streets.

Looking at all sectors (aside from retail), (‘R3’s’latest ‘Business Distress Index’ showed a jump in the number of businesses that

regularly use their maximum overdraft facility (up from 17% to 30%). This demonstrates the degree of difficulty outside the official insolvency statistics. It alsoshows that we have not had the spike in corporate insolvencies that tend to follow a recession, where asset values rise and creditors act on failing businesses. Unlike previous recessions, when creditors were much more ‘trigger happy’ to enforce debt recovery, today we are living in a different world.Government statistics tell us that the liquidation rate never rose above 1% during the last recession, compared to a peak of 2.6% in 1993. Today it stands at approximately 1 in 138 active companies (or 0.7% of all active registered companies).

So does this mean we are going to bump along in the era of zombie businesses for a while? I fear so andexpect there to be slight increases in corporate insolvency this year. However, if the recovery picks up, the increases could be larger as ‘zombie’ businesses are finally laid to rest. Ironically, in a recovery period, we are more likely to see more corporate failures from start-ups.

Author: Lee Manning, President of insolvency trade body R3 and Partner in Deloitte’s Restructuring Services R3 – The Association of Business Recovery Professionals 8th Floor, 120 Aldersgate Street, London, EC1A 4JQ Tel: 020 7566 4200 | Fax: 020 7566 4224 press@r3.org.uk

In 2009, the UK insolvency industry played the following role: it was responsible for rescuing just under 6,000 businesses (approximately 5,850); it helped to save nearly two million jobs (estimated at 1,951,743) in companies going through insolvency; it also provided assistance to businesses with a combined turnover of an estimated £363 billion.

There are 1,735 Insolvency Practitioners (IPs) in the UK, 23% of which are based in Central London. This is fewer than in 2007–despite the fact the number of insolvencies IPs have to deal with has increased markedly since then. The majority of Insolvency Practitioners work on corporate insolvency,with many of those also working on personal insolvency.

However, only 5% of IPs work exclusively on personal insolvency. Those who work on both, spend nearly twice as much time on corporate cases, and nearly a quarter of their time on rescue work, turnaround and preventing insolvencies. This is the primary goal for the IP – to try and rescue the business, or parts of the business, that can be saved. Given the business has already ‘failed’, or essentially run out of money, this is often a huge challenge.

can also provide suggestions on how to make a business financially viable. Given their experience and independence, insolvency practitioners are typically in an excellent position to negotiate an arrangement with the landlords, financial creditors and suppliers.

For the most part, banks, suppliers and landlords are far more likely to agree to informal measures, if independent work is being undertaken to identify problems and restore a failing business to financial health.

Administration Administration provides distressed businesses witha period of breathing space to restructure its financial structure and operations. An Insolvency Practitioner (‘the administrator’) managesthe affairs of the business and property of the company.

During this process,the administrator’s key objective is to rescue a company as a going concern. Where that is not possible, they are charged with trying to get more money back for the company’s creditors, than would happen if the company were wound up (usually by trading the business on in order to sell all – or part of it – to a willing buyer).

Company Voluntary Arrangement (CVA)

IPs have a number of tools at their disposalincluding, trading under an administration, a ‘pre-pack’ admin sale, a Company Voluntary Liquidation (CVA) and, as a last resort, a liquidation. When appointed to an insolvent business, an IP is tasked with maximising returns to its creditors. They essentially have to ‘pick up’ the business and decide what to do with it.

This may involve taking over the company’s reins to reverse its decline; selling it–or part of it – on; continuing to trade the business to increase returns to creditors; or – in cases where the company is extremely weak – close it down.

A CVA is a legally binding agreement between an insolvent company and its creditors. It allows a company to put a proposal to its creditors under which they agree to accept a certain sum of money, or a full/part repayment schedule over an agreed period of time.This procedure is extremely flexible as, for example, a CVA may involve delayed or reduced payments of a compromise debt or a disposal of assets. This proposed arrangement requires the approval of at least 75% (in value) of the creditors, and also a majority (50%) of the unconnected creditors. Any dissenting creditors are also bound by the CVA.

Informal Re-structure/Turnaround

Liquidation

However, it may not be necessary for businesses to enter into a formal insolvency procedure, if management seeks advice from an IP or debt advisor as soon as they think they may be facing financial difficulty. IP’s are not only able to conduct an in-depth review of a business and offer advice on the steps they think should be taken, but they

Member’s Voluntary liquidation (MVL) An MVL is sometimes known as a ‘solvent liquidation’ and can be a tax efficient process. The appointment is made by the shareholders, and pays all creditors in full with any surplus paid back to them.

A CVL occurs when the shareholders – usually at the request of the directors – put a companyinto liquidation because it is insolvent. This means either the company cannot pay its debts as they falldue, or it has more liabilities than assets. The liquidator will collect the company’s assetsand distribute them among the creditors.

Compulsory Liquidation A compulsory liquidation occurs when a company is wound up by order of the court, andis started by a petition presented to courton the grounds that it is unable to pay its debts. A creditor, the company itself, or the other parties can then present a petition.

The World Bankannually publishes a series of measures on the ‘ease of doing business’ across 183 countries. Some of these indicators relate directly to the insolvency sector and regime within each jurisdiction (e.g. the time it takes to close a business). The 2008 Cebr report states that ‘of all 39 indicators reported on by the World Bank, the recovery rate when a business is closed (i.e. the pence on the pound recouped by creditors through the bankruptcy or insolvency proceedings) is the most strongly correlated to a country’s prosperity (measured as gross domestic product per capita). The time it takes to close a business is also strongly related. Likewise, the recovery rate and speed of closure are also strongly correlated to rates of investment in an economy, and overall rates of economic growth’.

With the cost (% of estate) low at 6% and the recovery rate (cents on the dollar) high at 88.6 cents, the UK does well on an international comparison. In fact, the World Bank Data June 2011 states that the UK's recovery rates are the sixth best in the world. Our insolvency regime also performs better than USA in terms of both speed and returns to creditors. Therefore, while it may not be themost obvious thing to celebrate, let us be proud of our insolvency regime and the chances it affords our entrepreneurs.

Creditors Voluntary Liquidation (CVL)

July 2012 • Global Business Magazine • 57

MERGERS AND ACQUISITIONS: STRATEGIC ALLIANCES & VENTURE AGREEMENTS

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STRATEGIC ALLIANCES & VENTURE AGREEMENTS

Alliance Management Navigates Businesses Through the New Collaborative World When partnering is deemed a better option than ‘build’ or ‘buy,’ sophisticated alliance management principles increase odds for success well after deals are signed.

It is one of the most basic decisions every dealmaker and corporate leader faces, and a critical question that often plays a big role in determining a company’s fate – build, buy, or partner? Organisations have plenty of product development and R&D-focused employees dedicated to ‘Build.’ Their highest-ranking leaders tend to be acquisition-focused throughout their executive careers. Moreover, they are usually supported by legal and finance staff members trained in the nuances of the deal, and sometimes even flanked by various firms that specialise in M&A. But who in the organisation is seeing partnerships to fruition? True, many parts of the company play a large role in this endeavour – among others, sales, marketing, development, legal and regulatory affairs.

However, there is an emerging profession dedicated to tying all of these parts together, to ensure that both the company and its partners stay on track to achieve the strategic alliances’ stated goals – alliance management.

Hundreds of thousands of people have formal titles such as ‘alliance manager’ or ‘partner manager’, including more than 2,000 at IBM alone. They are charged with a multitude of responsibilities across the entire life cycle of an alliance – from negotiation, planning and execution to termination or expansion. Several thousand more working in the aforementioned other divisions, are also increasingly being tasked with the same duties.

There are mainstays in industries such as biopharma and IT whose business models and end products and services absolutely

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depend on careful cooperation between organisations. Meanwhile, Global 1,000 companies and multinational organisations in several other markets, are increasingly relying on alliance management to resolve today’s business world’s dichotomy that despite fewer resources, demand a fastertime-to-market than ever to capitalise on shorter windows of market opportunity.

These, among others, include financial services, consumer packaged goods and manufacturing. In addition to penetrating new markets and driving new revenue streams, organisations are counting on their strategic alliances to fill product gaps and bolster offerings, increase efficiencies, access new technology or expertise and bolster R&D. This can be seen in the increasing reliance on collaborative networks in supply chain-oriented industries such as automotive, and the many other industries today that are relying on similar ecosystems of external resources for innovation. Therefore, it is up to alliance management professionals to put the alliance’s interests at the forefront and proactively anticipate roadblocks, to make sure these goals are ultimately achieved.

Laying the Foundation for a Solid Partnership Alliance managers work with lawyers and business development professionals as deals are being finalised, to devise a framework that enables each of the partners to achieve the alliance’s objectives. They also ensure that proper governance structures are put in place, such as executive committees with influential high-ranking officers from all parties in the alliance, appropriate operations subcommittees, rules of engagement and a formal escalation path for handling disagreements that may arise. They work diligently to achieve executive sponsorship by identifying leaders who will not only back the partnership, but also stay engaged to

ensure that the rest of the organisation plays their role in seeing it to success.

Alliance management professionals convince sales divisions to forgo profits from short-term one-off sales engagements and maximise longer-term revenues by collaborating with partners. They are the ones who help assess what IP to share with partners, who gets access to it and how. And as ‘co-opetition’ continues to blur the lines between partner, competitor and customer, those schooled in the alliance management discipline, help each partner extract the value from the alliance while mitigating adverse effects of the companies’ competing elements.

Alliance specialists might come from sales, marketing, product development, strategy or another types of background, but they ultimately develop more than a rudimentary understanding of the basic needs and modus operandi of several integral divisions within an organisation. An alliance manager is “part diplomat, part salesperson, part strategist, part entrepreneur, part coach and mentor,” according to Jan Twombly, CSAP, president of alliance management consultancy The Rhythm of Business.

In 2009, the American Management Association, Pearson Talent Assessment and The Society for Human Resources Management collaborated on a report titled Today’s Alliance Professional... Tomorrow’s Strategic Leader that outlined some of the qualities alliance management professionals share with executive leaders. This included facilitating a consensus among several key stakeholders, dealing with ambiguity, assessing difficult situations, driving innovation and facilitating achievement of the organisation’s financial and strategic objectives. According to the report’s authors, “Strategic alliance professionals have the intellectual horsepower and leadership drive needed for executive positions.”

ASAP: The Backbone of the Alliance Management Community The Association of Strategic Alliance Professionals (ASAP) is a professional association designed to support the needs of those who are making their living in the field of alliance management and advance the discipline, so that it continues to contribute to solving the business world’s most critical challenges. It is the organisation Global 1,000 and multinational companies such as Eli Lilly and Company, Cisco, Xerox, HP, Juniper Networks, IBM, and AstraZeneca leverage, to ensure that their alliance practices as a whole – and the individuals responsible for running them – can optimise their partnership portfolios to add value to their business. Founded in 1998, it provides its 2,000-plus members offerings and services in three broad areas that help improve their job performances and advance their careers – knowledge and resources, professional development, and networking opportunities.

Knowledge and Resources ASAP’s knowledge base is built upon the experiences of its membership, which includes the profession’s pioneers and thousands of thought-leading individuals and companies. The organisation encapsulates this wisdom in several forms: first, through white papers on critical issues facing alliance management professionals and the alliance-related challenges of companies as a whole; second, using case studies profiling successful partnership engagements and a monthly Best Practices Bulletin; third, by presenting the latest academic research related to the profession – the latter including the State of Alliance Management Study, the most comprehensive academic study of the discipline, which every few years examines alliance success rates and many aspects of ongoing management of partnerships. This study aims to uncover underlying factors that correlate to strategic alliance success and failure.

In addition to educational tools, ASAP also leads the charge in not merely defining the discipline of alliance management and the accompanying skill sets of the profession but the general job descriptions. The organisation’s membership also shares tools and processes that can be applied directly to the day-to-day affairs of negotiating and managing a partnership, including metrics, measurements, governance procedures, pricing tools, methods for obtaining executive sponsorship and tips for internal merchandising alliance success.

Professional Development

its certification program. There are two levels of certification: the Certification of Achievement-Alliance Management (CAAM) which is the basic level of certification for up-and-coming alliance professionals who have three or more years of experience; and the Certified Strategic Alliance Professional (CSAP) which is the advanced level of certification for seasoned practitioners with a command of the full alliance life cycle from inception to wind-down. It’s by staffing alliances with certified professionals, upper management can be comfortable that its alliance personnel have the ‘hard’ and ‘soft’ skills required to give partnerships the best chance to succeed. According to the 4th State of Alliance Management Study, released this year, the results bear this out with an alliance success rate of 56 percent among ASAP members, whereas non-members saw their partnerships achieve stated objectives 49 percent of the time.

The certification program has many intangible benefits. For the profession as a whole it brings credibility, sets standards and illustrates the value of the position.

Individual practitioners get a concrete development path that crystallises the skills needed at different points in their career.

Moreover, certification takes on a particular importance in this field because even the world’s top business schools are only in the beginning stages of incorporating formal alliance management principles into their curriculum.

Community and Networking Of course, the many materials and training can only take you so far. That’s why ASAP members value highly the opportunity to network with the most accomplished individuals and companies, in order to share challenges and successes in person.

These connections happen at formal events, such as the ASAP Global Alliance Summit (the world’s largest annual gathering of leading alliance management professionals and organisations) and the BioPharma Conference (the most content-rich event dedicated to alliance management in the biopharmaceutical industry). They also occur at the get-togethers of ASAP’s 16 regional chapters, which span three continents and numerous countries. Since alliance

management professionals find that the tricks of the trade often apply horizontally, the exposure to peers from other industries frequently presents invaluable discoveries.

More important, while ASAP provides the intellectual and social support structure critical to all specialised professions, the community is especially valuable to people working in alliances. One reason is the aforementioned lack of available courses at institutions of higher learning, because even with formal classroom learning, the nuances of alliance management take years of practice to master. As much as the profession has done to standardise tools and methodologies, each alliance has its own unique dynamics –‘if you’ve seen one alliance you’ve seen one alliance’ is a popular phrase amongst the membership. This puts a greater premium on swapping ideas with other practitioners.

Moreover, as executives are beginning to understand alliance management’s importance in achieving core goals, alliance specialists – a group that tends to take particular pride in the contributions made by its profession – are leaning on one another more than ever to continue raising the profile of this ascending career, that is determining the course of the business world to a greater extent with each passing year.

To compete in today’s world you must be able to collaborate. Alliance management is enabling businesses thrive in this new reality.

By Art Canter Art Canter is the president and CEO for ASAP. In his role, Canter oversees all elements of management of the organization, including resource and program development, corporate and member relations, sales, marketing and general administration. Canter brings more than 20 years of management and leadership experience with a strong focus on strategic planning, marketing, sales, financial and resource management, education, program development, public relations, fund development and government relations. He received a Bachelor of Arts from Northeastern University and a Master of Public Administration from the University of New Haven.

For more information about ASAP, visit www.strategic-alliances.org, email Lori Gold at lgold@strategic-alliances.org, or call +1-781-562-1630, ext. 203.

One of ASAP’s biggest contributions to the alliance management profession is

July 2012 • Global Business Magazine • 59

MERGERS AND ACQUISITIONS: STRATEGIC ALLIANCES & VENTURE AGREEMENTS

Scaling Your Business Globally: the Big Picture Questions in the Current Financial Markets ‘It’ technically started in 2008 – the acute crystallisation of the toxic derivatives world into the record foreclosures, bank collapses, and the unwinding of the U.S. and Europe into today’s global financial crisis.

One has almost become accustomed to the daily articles on the status of the ‘American Dream,’ the volatility of the eurozone, and the simultaneous promise and doubts with regard to the emerging markets and their rapidly growing consumer bases. Uncertainty is the common theme of the day.

Yet, despite consistently unpredictable economic forecasts, there are some exemplary and visionary businesses plowing forward and turning the press images on their head. There is the ‘gang of four,’ as Google chairman Eric Schmidt calls them – Amazon, Apple, Facebook, and Google. They drive innovation and consumer demand at an unprecedented rate by way of their respective strengths – commerce, devices, social, and search (Erick Schonfeld, Erick Schmidt’s Gang of Four: Google, Apple, Amazon, and Facebook: Tech Crunch: May 31, 2011). Amongst the headlines of China funds retreating from the Euro zone and businesses struggling to understand the rising China consumer, there are images of hundreds of customers in Beijing not retreating but rather marching forward, as these consumers, clearly understood beyond anyone’s imagination, grow impatient and unruly after not being able to access the latest iPhone (Sharon LaFraniere: All iPhone Sales Suspended at Apple Stores: N.Y. Times: Jan. 14, 2012, at B2).

There are also the forward-moving brick and mortars such as Spain’s Inditex, the owner of fast-fashion retailer, Zara. Amongst the headlines of a debt-crushed Spain and data showing retail sales falling at a record monthly pace, Zara is opening an average of more than a store a day, introducing online sales in China in September, and expanding rapidly across Asia and Latin America (David Román & William Kemble-Diaz: Owner of Fast-Fashion Retailer Zara Keeps Up Emerging-Markets Push: Wall St. J: June 14, 2012, at B3).

What is certain these days, is that to compete in this rapidly evolving landscape, businesses must be visionary, innovative, and globally scalable. Successful businesses drive execution based on a solid understanding of their strengths and visionary efforts to scale these strengths. They march decisively into unknown territory around the globe and within the internet cloud. Amazon leverages

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its strength as a global aggregator for media, products, and feedback, to scale its commerce into the cloud with its Amazon Web Services, supporting hundreds of thousands of businesses online. Apple singularly integrates its design genius into its engineering and tackles China as its fastest-growing region, with $13 billion in annual sales (Jessica E. Vascellaro & Owen Fletcher: Apple Navigates China Maze: Wall St. J: Jan. 14, 2012).

However, to be in this position, a lot of questions had to be asked. What are my business’ actual and potentially strongest assets, and what should I be focused on leveraging? What do I need to acquire or ally myself with in order to scale? What does the outcome look like, how is it structured, and how does it impact my business and its returns?

Let’s play out this scenario. You have decided to expand your business by merging or joint venturing with another platform with established footholds in certain areas. Where does this aspect of your business stand in the competitive landscape in the current environment? Are you a leader or the first to market in a space with rapidly growing opportunities? That is, are you spending time and resources to leverage your strongest and most deployable asset in the current market or should your strengths and hence your resources be better defined and allocated?

The John Bussey article, The Anti-Kodak: How a U.S. Firm Innovates and Thrives (Wall St. J: Jan. 13, 2012) gives a great example of this kind of analysis. This article covers Milliken & Co., a Spartanburg, S.C. company with roots in the textile industry.

In a labour-intensive business that has long since relocated to lower wage jurisdictions, Milliken should have closed its doors like many of its industry fellows. Instead, the company is enjoying peak economic performance, because while temporarily detracted by wasted efforts to hold back cheap imports, it quickly re-evaluated its possibilities. It diversified out of textiles and into niche products based on its deep knowledge of textiles and speciality chemicals. Today, Milliken’s fabric and chemical know-how can be found in duct tape, washable markers and fire-resistant materials.

Once you confirm that you are approaching a transaction from the right point of strength and know-how, the next question is: what am I buying or investing in? Are you buying a product itself and its effectiveness in targeting a certain consumer need, or is

something more intangible really behind it such as a culture of innovation or global market presence? Then the real questions begin.

For example, if the product is based on scientific innovation, will the respective scientific team remain in place? How are they incentivised? Will the anticipated combined structure provide the same incentives or sense of ownership that drives innovation in a start up? Are other aspects to the innovation required to keep customer traction? For example, pure engineering without accompanying design would not result in the same international customer base and fanfare behind the Apple products.

From a diligence perspective, one would want to ensure that all aspects of the assets required to produce the unique product dynamics – including the human capital and collaborative culture – remain intact.

In terms of global market presence itself as an asset, a presence in key sectors carries a significant premium these days. Of note is the recent $11.9 billion purchase by Nestle of Pfizer’s infant nutrition business unit in order to expand its global presence in the baby food business, particularly in China and Saudi Arabia (Mark Scott: Nestle to Buy Pfizer’s Infant Nutrition Unit for $11.9 billion: N.Y. Times: Apr. 23, 2012). In order to ensure ongoing traction and growth in premium markets, it will be important to diligence key drivers. Review should include: key relationship histories; sales culture and legal management of such cultures; market expansion incentives; brand impact and potential replication in select markets; production; supply chains; and financial controls. The benefits of any market presence should be weighed against the costs of ongoing development of compliance infrastructure, as demonstrated by the many recent and highly publicised FCPA, labour, environmental, as well as product quality violations and investigations of multinationals around the world.

Once you have matched your assets to the right partner to scale, it is important to determine the right structure. The key issue here is determining the goals behind the transaction. For example, in the case of Roche and Genentech, the companies shared a mutually beneficial alliance for many years prior to acquisition. Through their alliance, Genentech was able to receive funding to develop products, and Roche was able to access innovative products and ultimately liquid equity interests in a successful public biotech company. It is unclear whether

acquisition by a large pharmaceutical company from the very beginning would have yielded the same results. The priority here for both parties was to preserve the innovation and incentives in place that triggered a successful product pipeline.

Should you pursue an alliance as opposed to an acquisition, a common mistake is to assume that every form of collaboration or strategic alliance outside of the merger context is a ‘joint venture.’ In order to pursue a joint venture the parties must create a separate entity and invest certain assets in that venture. They create separate governance from operations to dissolution, which can be costly and time-consuming. In effect, the venturing parties are ‘married,’ with separate and sometimes conflicting fiduciary duties to their separate entities as well as to the joint venture entity itself.

On the other hand, in a strategic alliance both entities remain separate and the relationship is defined within the confines of a contract.

The contract should very clearly spell out the assets to be shared, the extent of this sharing, and each of the respective parties’ action items with respect to a particular project. In effect, a strategic alliance can achieve everything that a joint venture does without the separate entity and governance.

Unless a joint venture is required for certain co-branding or jurisdictional incentives, it is clearly not the first path unless there is a compelling business case.

The final step is to calibrate the expected business returns of the proposed alliance or combination. It is important to drill down into the financial dynamics of the structure to ensure that expectations are managed.

For example, certain jurisdictions may require upfront fees to be retained within the joint venture and may not be accessed by the receiving party for some time. In addition, there may be significant VAT, customs, withholdings, double taxation, and limitations on repatriating profits, such that the expected financial returns are severely diminished. Proper structuring can address many of these issues, but planning should be done well in advance to ensure favourable treatment.

Maria Sendra is a Partner in the San Diego office of Jones Day, where she is a member of the Private Equity practice group. For more information, you may contact her at +16198503888 or at msendra@jonesday.com.

In short, in the current financial climate, vision and innovation based on your business strengths and know-how will take you a long way towards identifying the right value partner or strategy to scale your business.

Tracing the anticipated flow of funds and the various tax and cross-border financial and regulatory dynamics, will be key to ensure accurate financial planning and returns as you grow globally.

Maria Sendra This publication should not be construed as legal advice on any specific facts or circumstances. The views set forth herein are the personal views of the authors and do not necessarily reflect those of Jones Day

July 2012 • Global Business Magazine • 61

MERGERS AND ACQUISITIONS: STRATEGIC ALLIANCES & VENTURE AGREEMENTS

Growth & Acquisitions: Key Concepts for Successful Deals

by Kenneth H. Marks and the AM&AA (Alliance of Merger & Acquisition Advisors) After a long drought of M&A activity, the market for private companies is not just recovering …it is thriving. If you own, operate or advise a middle market company, $5 million to $500 million in revenues, how do you take advantage of this market dynamic to super-charge growth? M&A can be a viable alternative for accomplishing a number of strategic objectives in the context of building and realizing value for middle market companies.

Let’s take a high-level view of the typical M&A processes, and a framework for thinking about each.

Exits In many instances the distinction between selling a company (i.e. an “Exit”) and raising capital is measured by the amount of equity sold and the contractual rights obtained by the buyer. Financing growth raises the issue of long-term shareholder objectives, which many times involve eventual liquidity. As the wave of business transitions driven by baby boomers planning their legacy and succession continues, some shareholders are confronted with a multifaceted decision of how to finance the continued growth of their business, create liquidity for their owners, and lay the foundation for operations independent of the owner/founder.

Others see the opportunity to buy-out partners or create some liquidity while staying in the game for what may be deemed a second bite at the apple. This is the concept of selling a controlling interest in a company to a financial buyer (i.e. a private equity group) and rolling over or keeping a minority interest until a subsequent sale or liquidity event happens when the company is expected to have grown in value (under the watch of the new owners with their capital).

There are numerous examples where the sale of the minority interest in the follow-on transaction (three to five years from the first transaction) resulted in as much economic gain as the original sale to the financial buyer.

Recapitalization Generally a recapitalization will involve a lower cash-out (as a partial Exit or staged Exit) for the active owners than a buyout (which involves a change of control).

A recapitalization will most likely be focused on changing the relative mix of debt and equity with an eye toward the growth objectives 62 • Global Business Magazine • July 2012

of the company and the required goforward capital. For example, a leveraged recapitalization will most likely increase the debt of the company in exchange for distributions, dividends, or purchase of equity.

Acquisitions Acquisitions can meet a number of goals if approached and executed as part of a longterm strategy. Some of the typical reasons executives pursue acquisitions include: accelerate revenue growth, enter an adjacent market space, expand into a new geography or obtain a physical footprint in a new location, access new customers or technology, strengthen the pool of talent, augment a product or service line, or reduce costs.

The first phase of a typical acquisition process will addresses finding a target company to buy; this begins with the strategic plan that should lay the foundation to determine many of the parameters and the focus of the process. The second phase of the process is to structure the deal, close the transaction, and integrate the business.

The financing strategy to support the acquisition should initially be thought of in the context of the overall acquisition process and be defined as part of the acquisition strategy. If your company is cash flush or the acquisition target is immaterial in value, the financing strategy may be as simple as funding the transaction from operational cash flow or cash reserves. However, if the deal requires external funding, management must consider a financing strategy, which typically begins with understanding the acquiring or buying company. This involves: determining its valuation and financial strength; establishing financial objectives and benchmarks for vetting possible acquisitions; determining parameters around how much the buyer can afford; conducting internal discussions around an ideal or preferred deal structure; establishing relationships with

The AM&AA (www.amaaonline. org) is the leading association and credentialing body for 750 + middle market M&A professionals in 19 countries, providing connections, best practices and education. The primary goals of the AM&AA is to help members improve their level of knowledge, give them access to the tools to help them better market and deliver their services, and provide them with a network of knowledgeable.

financing sources; obtaining buy-in regarding the acquirer’s plans; and obtaining evidence for potential sellers of the buyer’s ability to finance and close a deal.

From these parameters, management can then think about financing a specific target company …which is a function of the value of the target; the likely cash flow of the target; an the deal structure and the integration strategy. Of the many core concepts that management should keep in mind …the most important is to focus on value creation.

The essence of the process is analysis and understanding of the shareholders’ and company’s objectives, financial and competitive position, growth strategy and initiatives, and valuation.

Kenneth H. Marks is the founder and Managing Partner of High Rock Partners, providing strategic and financial advisory services. He is the lead author of the Handbook of Financing Growth” www.HandbookofFinancingGrowth.com.

The Association of Strategic Alliance Professionals is the organisation Global 1000 and multinational companies turn to in order to support their alliance function and achieve the larger business objectives of their partnerships.

It provides a forum for companies and the individuals responsible for executing their partnership initiatives to exchange best practices and build a framework for cultivating the skills and toolsets that ensure its alliances drive innovation, increase revenue, penetrate new market segments, or obtain critical expertise or intellectual property.

Join ASAP to take advantage of an array of essential member benefits, including: ✓ ✓ ✓ ✓ ✓

Networking Best Practices Professional Development Certification Research

✓ ✓ ✓ ✓ ✓

Chapters Conferences Case Studies Training Strategic Alliance Magazine

Receive a complimentary copy of the profession’s leading alliance and business collaboration publication – Strategic Alliance Magazine.

Go to www.strategic-alliances.org/freeoffer today!

www.strategic-alliances.org info@strategic-alliances.org Tel: +1-781-562-1630

ASSET BASED LENDING

Asset Based Lending Why Asset-based Finance Offers a Key Alternative to Traditional Lending

The popularity of asset based finance has been steadily growing over the past few years. This trend looks set to continue according to a recent survey conducted by the Asset based Finance Association (ABFA or ‘the Association’). The survey forecasts that the industry could grow by as much as 9% in 2012. While this is the first time the trade association has asked its members to predict industry growth, the results demonstrate an air of cautious optimism among the association’s members.

Members have forecast that turnover from companies using asset based finance in 2012 may hit £259bn by the end of the year – up 12% from £235bn in 2011. Total funding provided by the industry is forecast to reach £17.2bn in 2012, with the number of clients using invoice finance and asset based lending expected to reach 44,412 this year – up 7%.

In general, the survey results underpin the confidence seen by the industry as the popularity of asset based finance rises. This popularity and growth within the industry is largely down to the unique dual benefit that asset based finance solutions can offer both the user and the funder. Asset based finance products such as factoring, invoice discounting and asset based lending have the ability to offer greater levels of finance to the user, whilst enabling the funder to actively manage and reduce their risk.

Asset based finance products have also helped businesses to grow their sales during 2011. The latest quarterly figures from the ABFA (quarter four 2011) show that firms, which use invoice finance are enjoying continued strong growth in their sales – up 13% to year-end 2011. Total client turnover in 2011 for companies using this form of funding have reached £238bn – continuing the year-long trend of firms using invoice finance tending to see an expanding sales base and successful trading.

This demonstrates that the products are sustainable and long-term.

Increasingly, larger companies are also choosing to use asset based finance products.

The number of members’ clients with turnover above £10 million in 2011 rose to 3,535 (up from 3,126 in 2010) – a growth of 13%. This increase is largely down to the products’ inherent strengths, flexibility and availability. These figures are a strong endorsement of asset based finance and its continued growth in popularity, not least because firms that use this form of funding are able to grow and increase their turnover.

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However, ABFA members remain pessimistic about the state of the wider UK economy – 92% expect conditions to remain unchanged in 2012 and a further 5% are forecasting that the economy will take a turn for the worse.

If this is the case then asset based finance will become an increasingly important form of funding for cash strapped businesses throughout the year.

An important part of the ABFA’s role is to provide education to staff within the industry in the UK and Ireland. This work has gone from strength to strength over the last five years, with numerous day courses and distance learning courses being offered to help and encourage individuals obtain a higher level of understanding of the industry they work in.

In the last five years, it is estimated that over 2,000 students have worked through at least one of the ABFA’s distance learning courses. Over that period, similar numbers have also attended the various day courses that the Association offers – numbers that are testament to the commitment of ABFA members in ensuring that staff are given every opportunity to do the best they can in their job roles and to successfully develop their careers.

Another central part of the ABFA’s work is to represent the industry with policy making and political audiences, to ensure that policy development recognises the benefits of these types of products. Recently, the Association has been working extensively on issues around access to non-bank sources of finance The ABFA also delivers a programme of public relations activity, to disseminate wider understanding of the products through the media to the business community and potential clients.

As more and more markets become aware of the benefits of asset based finance, the industry expects to see increased visibility and usage of the

For more information please visit: www.abfa.org.uk or call 020 8332 9955

products. Although well established in the UK, the asset based finance industry is still in its early stages of development compared to many other forms of commercial finance, which is why it is so important that end users are educated about the many benefits.

Overall, asset based finance has continued to grow in popularity and this trend looks set to continue throughout 2012. It has become a vital element of the business funding landscape and is one of the few types of finance that is actually growing and is available to all sizes of firms.

Kate Sharp, Chief Executive of the Asset based Finance Association The ABFA is the body that represents the asset based finance industry in the UK and Ireland. Its members range from subsidiaries of major international banks to small independent finance providers.

The ABFA provides a variety of services to UK and Irish members, including online services, educational courses, lobbying, PR and educational and networking events. The ABFA and its website, www.abfa.org.uk, is a source of information and reference for those businesses looking to find out more about the products and services that this industry can offer.

July 2012 • Global Business Magazine • 65

THE BUSINESS CASE FOR SUSTAINABLE FINANCE

The Business Case for Sustainable Finance Edited by Iveta Cherneva

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The post-financial crisis period marked by reflection and analysis of “what went wrong” has put the spotlight on the operations of the global financial industry. Until recently, environmental, social and governance (ESG) factors have been present only in the soft domains of ethics, philanthropy and reputation management. Few academic works have asked the question: is there a business case for sustainable finance?

Published on 20 June this year in the week of the UN Rio+20 conference on sustainable development, the edited volume The Business Case for Sustainable Finance brings together finance industry insider perspectives from top global institutions, which focus on the bottom line for integrating ESG factors into the operations of the finance industry.

“Highly recommended. The book provides a truly global picture, drawing on the expertise of the foremost voices in the sustainable finance space.” – Dr. James Gifford, Executive Director, United Nations Principles for Responsible Investment "In this collection of outstanding essays – where the business case meets sustainable finance in China and South Africa; for poverty reduction and climate change; with microfinance and ESG analysis – the rubber meets the road and it will leave its mark. You won't want to miss it." Steve Lydenberg, Founding Director, Initiative for Responsible Investment, Kennedy School of Government, Harvard University

“Topical and timely, the book will be useful to finance professionals, as well as students of finance. It addresses the elephant in the room: does sustainable finance make commercial sense for financial institutions?” – Colin Melvin, CEO, Hermes Equity Ownership Services Ltd. From sector-specific perspectives such as investment, asset management, banking, and microfinance, to current topics such as quality of management, litigation, climate change, natural capital, labour, human rights standards, impact investing, and poverty reduction, to managing risk in emerging markets such as China and South Africa, The Business Case for Sustainable Finance provides a global picture of the way issues traditionally seen as ethical and public “do-good” issues actually affect returns in a very real numerical way. Here is how some of the study contributors commented on these issues for GBM: “As the evidence mounts of how important ESG issues can be to the fortunes of corporations, these factors are seen less as the weird preoccupation of an isolated minority and more as the central issues that they really are.” Mike Scott, Journalist “There are associated risks with investing in emerging markets”, Helena Vines Fiestas, Co-Head of SRI Research and Head of Sustainable Thematic Research, BNPParibas Asset Management “In South Africa finance institutions face significant risk-associated challenges related to climate change and the conservation of natural resources, which require a framework for ESG risk identification and a long term strategy for effective risk management”, Madeleine Ronquest, Head of Environmental and Social Risk, FirstRand Group Ltd. “Integrating ESG indicators has been accepted as an essential element of mitigating risk and avoiding investment in ‘unhealthy’ institutions”, Dr. Harry Hummels, Managing Director, SNS Asset Management “There is an added value to combining financial and non-financial metrics”, Marieke de Leede, Impact & Investment Analyst, SNS Asset Management “Investors need to look beyond stock-specific issues and take a more holistic approach to risk management that encompasses wider structural risks”, Rory Sullivan, Strategic Adviser, Ethix SRI Advisers “There is a low-carbon financial opportunity, which is defined by two complementary trends: first, taking energy out of the economy through improvements in efficiency; and second, taking carbon out of energy by curbing emissions from fossil fuels”, Nick Robins, Head of Climate Change Centre of Excellence, HSBC. July 2012 • Global Business Magazine • 67

DEAL DIRECTORY

Deal Directory The Innovation Group plc: Acquisition of Value Partners N.V. On 14 June 2012, the Innovation Group plc (‘the Group’), a global provider of business process services and software solutions to the insurance, fleet, automotive and property industries, announced the acquisition of Value Partners N.V. (‘VP’), a leading provider of outsourcing services to the insurance and independent broker communities in Belgium. The Innovation Group provides 24x7 helpdesk services to independent brokers on a subscription basis, and has now expanded into telesales and claims management services to insurance companies. The acquisition provides the existing Belgium business the opportunity to increase managed accident repair volumes through access to the claims currently being handled by VP. Commenting on the acquisition, Andy Roberts, CEO of The Innovation Group said: “I am delighted to be announcing the acquisition of Value Partners N.V. today. This new acquisition is an additional and important step in our strategy to invest in and acquire businesses that strengthen our existing service core, allow us to capture additional value within the Group and provide us with a clear competitive advantage.” For more details, visit www. innovation-group.com.

KBC Announces Expansion into the Upstream Oil and Gas Software and Services Market KBC Advanced Technologies plc (‘KBC’ or ‘the Group’) announced on 19 June 2012, that it had purchased Infochem Computer Services Limited (‘Infochem’), a leading provider of specialised software and services to the upstream oil and gas industry, for an enterprise value of £9.5m. The acquisition of Infochem is the first step in KBC’s growth strategy to both expand into the upstream energy industry and increase software sales as a proportion of overall sales.

Philip Birch commented: “KBC’s vision of unified simulation from upstream oil and gas through to downstream, is a strong fit with Infochem’s vision of production and process management integration through high-accuracy compositional modelling. The

68 • Global Business Magazine • July 2012

combination of both companies’ technology creates a unique suite of thermodynamics, flow assurance, process simulation and energy management technologies and services, which provides a step change for the oil and gas sector. In addition, access to KBC’s significantly larger global network, to market and distribute Infochem’s software will deliver significant growth opportunities.” For more information, visit www.kbcat.com.

Sage Enters Brazil with Acquisition of Folhamatic Group On 20 June 2012, the Sage Group plc (‘Sage’) announced that it had acquired a controlling interest in Folhamatic Group (‘Folhamatic’), a leading provider of accounting, tax and payroll and regulatory content software in Brazil. The expected total consideration of £125m (R$398m) for 75% of the equity equates to an enterprise value for 100% of the business, including estimated net debt at closing, of £191m (R$608m). The Sage Group plc is the leading global supplier of business management solutions to small and mediumsized enterprises (‘SMEs’). The acquisition of Folhamatic represents an important step in building Sage’s presence in key emerging markets, enabling a strategy focused on growth and a disciplined approach to returns. Commenting on the acquisition, Guy Berruyer, CEO of Sage, said: “We are delighted to announce the acquisition of a controlling interest in Folhamatic. It provides us with a market leading position in the large and rapidly growing Brazilian market. We are excited about the growth opportunity that the combination of Sage and Folhamatic creates in this market.” For more information, visit www.sage.com.

Sainsbury’s Moves into E-book Space Sainsbury’s announced on the 12 June 2012, the acquisition of HMV Group plc’s shareholding in Anobii Limited, a social network and online retailer of e-books. As a result of the transaction and Sainsbury’s investment in the future development of the business, it is anticipated that Sainsbury’s will have a 64% stake in Anobii. The investment in Anobii is a further step in

Sainsbury’s strategy to deliver digital services to support the growth of its online channel and commitment to multichannel retailing.

Anobii is an online e-books platform, which enables readers to research titles and purchase them to read on a range of e-reader, smartphone and tablet devices. Readers can rate, review, share and discuss their choices with other Anobii members on www.anobii. com and across related social networking sites. The service currently has over 600,000 users worldwide, with a library of over 60,000 e-books. Sainsbury’s joins Anobii’s existing shareholders and global publishers HarperCollins, Penguin and Random House Group (UK), with the aim of investing in and developing the business in the UK and overseas. Mark Bennett, Sainsbury’s Head of Digital Entertainment, said: “Anobii’s innovative use of social media is a clear differentiator. This acquisition is a valuable addition to our digital portfolio and shows our commitment to becoming a key player in the digital entertainment market. We’re excited about working together with the Anobii team and our fellow shareholders in supporting Anobii to become a leading retailer of e-books.” For more information, visit www.j-sainsbury.co.uk.

Serco Acquires Vertex’s UK Public Sector BPO Operations Serco Group plc (‘Serco’), the international services company, announced on the 11 June 2012 that it had acquired Vertex Public Sector Limited, the UK public sector operations of Vertex Data Science Limited, for cash consideration of £55.5m. Vertex Public Sector provides high quality Business Process Outsourcing (BPO) services to UK local and central government. Its 3,000 employees handle approximately 4.5 million citizen interactions a year. Christopher Hyman, Chief Executive of Serco Group plc, said: “This acquisition enhances the range of services we offer to the UK public sector as they seek to reduce costs whilst continuously improving outcomes for citizens. We are pleased with the important customer relationships it brings and the opportunity to extend and expand these. The newly added skills and capabilities will also help Serco address future prospects in both the local authority and central government markets. Following recent significant contract

wins, this is another important step for our BPO strategy and the development of our Global Services business. This business will have annual revenues of over $1bn, and approximately 50,000 employees offering a diverse range of middle and back office services to both public and private sector customers.” For more information, visit www.serco.com.

World’s Leading Independent Digital Agency AKQA to Join WPP WPP announced on 20 June 2012, that it had agreed to acquire, subject to regulatory approval, the assets of AKQA Holdings, Inc. (‘AKQA’), the world’s leading independent and most awarded digital agency. Founded in 2001, AKQA provides integrated digital communications campaigns, spanning social media, mobile, interactive experiences, gaming and content creation. Operating through offices in the US, Europe and Asia, the agency currently employs 1160 people worldwide – from software engineers and technologists – to creatives and strategists.

AKQA will continue to operate as an independent and stand-alone brand within WPP and be led by founder and CEO Ajaz Ahmed and Chairman Tom Bedecarré.

Tom will also become President of WPP Ventures, a new Silicon Valley-based company, which will explore new digital investment opportunities for WPP as a whole. Commenting on the arrival of AKQA, Sir Martin Sorrell, CEO, WPP said: ‘We are thrilled to welcome AKQA’s unique team of technological innovators and entrepreneurs to WPP. We have admired their creativity and technological skills for a long time along with their outstandingly effective and awardwinning work for clients. We are delighted to be united!” For further information, visit www.wpp.com or www.akqa.com.

Accumuli’s Acquisition of ‘Edge7’ Accumuli plc (AIM: ACM), the provider of Advanced IT Security Services, announced on 13 June 2012 that it had acquired the entire issued share capital of Secmon Limited (trading as Edge Seven or ‘Edge7’). Edge7 is

a Security Information Event Management (‘SIEM’) consultancy selling hardware/ software licences and consultancy in a growing specialised area of IT security. This acquisition provides a springboard into the SIEM market in line with the strategy articulated in the preliminary announcement of 22 May 2012. The management of both businesses believe that there is significant scope for the products and services sold by Edge 7 to be cross sold across Accumuli’s existing customer base. Nick Kingsbury, Non-Executive Chairman commented: “We are delighted to have completed our fourth acquisition since commencing the Accumuli buy and build project. Edge 7 is a business with a strong reputation and acknowledged expertise in implementing and extracting the full benefits from a SIEM platform.

This acquisition, along with our increased investment in this field, will enable us to provide our customers with a high level view on their organisation’s IT security estate, and actionable intelligence on specific threats.

It provides us with further depth in a skill set which allows us to engage at a higher, more strategic level with our customers and provide more cross selling opportunities across our customer base.” For more information, visit www.accumuli.com.

Better Capital – Acquisition of Shares in Pranita Engineering Solutions On 14th June 2012, Better Capital PCC Limited was informed of the acquisition of a 70% shareholding in Pranita Engineering Solutions Limited (‘Pranita’) by Gardner Group Limited (‘Gardner’), a company within the BECAP Fund LP (the ‘2009 Fund’) investment portfolio. Based in Bangalore, India, Pranita is a manufacturer and supplier of aerospace detailed parts and subassemblies, and has had a supply relationship with Gardner since 2007. The acquisition of Pranita will provide an opportunity for Gardner to develop business in the growing Indian aerospace market. Gardner is the UK’s largest independently owned supplier of metallic aerospace details and sub-assemblies. Customers include Airbus, Rolls-Royce, GKN, BAE Systems and other major international companies in the aviation sector. The acquisition of Pranita will provide

Gardner with another guaranteed low cost economy source of supply in addition to its existing facilities in Poland. Nick Sanders, Head of Portfolio at Better Capital LLP and Chairman of Gardner commented: “The acquisition of a majority stake in Pranita is an important next step in the strategic development of Gardner. Along with our existing facilities in Poland, Pranita provides an excellent low cost source and access to the fast growing Indian aerospace market.” For more information, visit www.bettercapital. co.uk.

Centaur Media –Acquisition of Econsultancy On 22 June 2012, Centaur Media plc (LSE: CAU, ‘Group’, ‘Centaur’), the business information and events group, agreed to acquire E-consultancy.com Limited (‘Econsultancy’), a leading digital marketing information provider, for an initial consideration of £12m. The acquisition is subject to shareholder approval. Econsultancy is a leading digital and events-led information provider to the global digital marketing and e-commerce community in the UK, with a growing presence in the USA, Middle East, Asia and Australia. Econsultancy has approximately 110,000 registered users and approximately 5,000 subscribers. The acquisition is a key part of the strategy to transform the Group into a predominantly digital and events-led business. The deal complements Centaur’s market-leading publications, events and digital services in the marketing, design and creative sectors. Geoff Wilmot, Centaur Chief Executive, said: “The earnings enhancing acquisition of Econsultancy provides us with an exciting opportunity to acquire a leading information brand in a high growth sector, with global potential which fits well with Centaur products including Marketing Week and New Media Age. Econsultancy is highly complementary with Centaur and gives us a prominent position in the rapidly growing digital marketing sector with the opportunity to scale internationally. We see considerable potential for collaborative growth through leveraging our existing position in marketing and the development of high value, paid-for information services.”

July 2012 • Global Business Magazine • 69

DEAL DIRECTORY

British Gas Acquires Equity Stake in Power Plus Communications GMBH

Acquisition of Lymtech Scientific in Porous Technologies

On 20th June 2012, Centrica plc announced that its British Gas division had invested EUR4.5m in cash in return for a minority shareholding in Power Plus Communications Gmbh (‘Power Plus Communications’), a German based technology company that provides broadband powerline technology for smart grid and smart metering applications. As part of this investment, British Gas will work closely with Power Plus Communications to develop and deploy technology solutions for its customers in the UK. The transaction will also enable British Gas to further expand its position in smart technology and enhance its smart metering service. Phil Bentley, Managing Director at British Gas, said: “We want to continue to lead in smart metering, making energy saving as easy as possible for our customers.

This is why we continue to drive the smart meter roll out and offer new, smarter ways to help customers take control of their energy usage. Power Plus Communications’ world leading technology will enable us to connect more of our customers with smart meters, transforming their relationship with energy and helping them better manage fuel bills.”

For more information, visit www.britishgas. co.uk.

Filtrona plc (‘Filtrona’ or ‘the Company’) announced on 14 June 2012 that it had acquired 100% of the share capital of John R. Lyman Company and Big Blue Properties LLC (together ‘Lymtech Scientific’) from William Wright and an associated family trust for a cash consideration of US$45.3m, subject to customary adjustments. Filtrona is a leading international supplier of speciality plastic, fibre and foam products. Based in the US, Lymtech Scientific is a manufacturer and distributor of porous speciality wiping materials used within the clean environments increasingly required by the medical, life science, electronic and industrial markets.

The acquisition of Lymtech Scientific not only adds complementary technology in a growth segment to Porous Technologies, but also enhances the commercial capability of the division through the addition of a distribution-selling channel. Commenting on today’s acquisition, Colin Day, Chief Executive, said: “The acquisition of Lymtech not only extends our porous fibre manufacturing technology, but also gives us access to the attractive growth and higher value cleanroom and controlled environment wipes market. In addition, through leveraging the global commercial

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and operational resources of our Porous Technologies division, there is a real opportunity to expand the Lymtech business geographically into the sizeable Asian and European cleanroom wipes markets.” For more information, visit www.lymtech.com.

PLUS Shareholders Approve Acquisition by ICAP On 18 June 2012, ICAP announced that Plus Markets Group plc (‘PMG’) had approved the sale of PLUS Stock Exchange plc (‘PLUS’) to ICAP. This transaction gives the companies quoted on PLUS the security and confidence that their listing venue will continue trading and be further developed by ICAP (the ‘Group’). Upon completion, ICAP will recapitalise PLUS and provide the necessary funds to build and develop the market. ICAP is the world’s leading interdealer broker and provider of post trade risk and information services. The Group matches buyers and sellers in the wholesale markets in interest rates, credit, commodities, FX, emerging markets and equity derivatives through voice and electronic networks. Through post trade risk and information services they also help customers manage and mitigate risks in their portfolios. For more information, visit www. icap.com.

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