Heading off to market

The Channel Islands are developing a reputation as go-to jurisdictions when it comes to listings on local and global stock markets – an area that’s enjoying a purple patch

It’s hard to hear the phrase ‘special relationship’ and not instantly picture Donald Trump walking hand in hand with Emmanuel Macron through the immaculate gardens of the White House. Putting that unpleasant image to one side, however, the phrase is actually quite a neat way of describing the Channel Islands’ capital markets relationship with the City. 

When we talk about capital markets in the islands, we’re essentially talking about two things – first, there’s The International Stock Exchange (TISE), where companies from around the world can list their businesses in a cost-effective, well-regulated environment. Second, the islands provide domiciliary services for inbound investment into the City – and other trading venues such as Hong Kong and Toronto – for international investors. 

When it comes to accessing London in particular, however, the Channel Islands are among the leading jurisdictions in the world. Jersey is home to the largest number of companies listed on the FTSE 100 registered outside the UK. In Guernsey, 119 domiciled companies have their shares trading on the London Stock Exchange’s AIM and Main Market – the highest of any jurisdiction outside England and Wales. 

“The City of London is one of the leading international transaction centres in the world,” explains Dan Richards, Partner at Ogier. “The role of the Channel Islands is to align themselves with and act as trusted long-term partners to those international transaction centres. Partly for historic reasons, and also for current reasons, the Channel Islands are particularly closely aligned to the City.” 

We hear plenty on the islands’ tax neutrality – is that the key factor in making Jersey and Guernsey so attractive? Simon Heggs, Senior Associate at Collas Crill, thinks not.

“For a number of years, the Channel Islands have been competing on an international stage with the likes of the UK, Europe and the US – the latter two via Luxembourg and Delaware respectively. Each offer their own tax-neutral structures and, as a result, the tax environment is becoming an insignificant factor in the choice of the Channel Islands.” 

Instead, the strength of the islands’ propositions lies in the quality of service clients receive. “The development of the Channel Islands’ financial services industries has created business hubs perfectly suited for international companies to operate from efficiently and effectively,” Heggs continues. “We’ve found that this is now the key driver in attracting new clients to the islands.”

Aiding growth

Even reclusive types living in the outer reaches of Brecqhou will be aware that Brexit is presenting some unique challenges to the UK, the EU and associated others.

The UK government is looking for new ways to stimulate the economy ahead of the March 2019 exit and sees the growth of small and medium-sized enterprises (SMEs) as one way of launching it on an upward trajectory. SMEs, however, are suffering from a lack of investment, which is where the Channel Islands come in. 

A press release from TISE recently stated: ‘A particular focus for us during the year will be showcasing how companies such as UK small and medium-sized enterprises, can potentially benefit from listing on TISE.

'We will be demonstrating how TISE is a more convenient exchange for listing SMEs compared with larger exchanges, but also that being based in the Crown Dependencies means we can offer stability at a time of significant uncertainty in the UK given the ongoing Brexit process.’

TISE’s track record

Formed 20 years ago and formally known as the Channel Islands Stock Exchange, TISE is based in Guernsey, with additional offices in Jersey and the Isle of Man. TISE is an affiliate member of the International Organisation of Securities Commissions (IOSC) and the World Federation of Exchanges, and is also now recognised by the German Regulator, BaFin, as well as HMRC – credible stamps of approval which are recognised globally. 

TISE specialises in listing investment funds – open- and closed-ended funds as well as real estate investment trusts (REITs) and specialist debt. There are more than 2,600 listings on TISE today, worth over £300bn – companies listed more than 700 securities in 2017 alone, a 40 per cent increase on the previous year. These listings are facilitated by local fund administrators, lawyers, accountants and other local financial services firms. 

“We’ve seen a lot of growth over the past few years, which has been really positive,” says Fiona Le Poidevin, CEO at TISE. “It reflects the expertise that the Channel Islands is known for in terms of existing business, and most of that typically originates from London. 

“Something that’s not so well known about TISE is that we list a lot of household names. Last year, we listed a high-yield bond for Netflix worth €1.3bn. We have convertible debt listed for Balfour Beatty, Yorkshire Building Society and Sainsbury’s. Even companies listed on other exchanges – their debt will come to us.”

Another area that’s experienced exponential growth in recent years is that of international investors looking to acquire UK real estate through Channel Islands vehicles. UK property has been particularly attractive since Brexit, with sterling essentially trading at a discount against other currencies. International investors are taking advantage of this and buying up property, particularly in the City, to the extent that investment in London real estate rose by 35 per cent in 2017. 

And Jersey was at the heart of that increase, with Ogier acting as Jersey Counsel on the acquisition of City buildings the ‘Walkie Talkie’ and the ‘Cheesegrater’ by international investors.

“From those two examples, you’ve got £2.45bn of direct investment into London, from international investors, via Jersey,” Ogier’s Richards explains. “These investors set up a Jersey investment vehicle – a Jersey company or a Jersey limited partnership perhaps – that provides a neutral, stable, very well-regarded platform for international investment into the UK.”

While property may be a more traditional asset class, this doesn’t mean the Channel Islands aren’t at the bleeding edge of innovation. By their very nature, many of the aforementioned SMEs are innovative companies. Which means new and exciting business opportunities are either being listed on TISE or domiciling in the islands to access further investment opportunities in the City. 

Fintech listings

In late 2016, TISE listed GABI, which at the time was the world’s first regulated bitcoin fund listed on an exchange globally.

“It was fantastic for us to be able to have that world first in such an innovative area,” Le Poidevin recalls. “I’m probably getting two or three queries a week through from blockchain-related businesses, or other fintech-type businesses. We’ve seen quite a lot on the tech side in the last couple of years, and we’re probably seeking it out as well, because it’s a trend that’s clearly there, with opportunity to follow.”

In fact, tech and fintech companies are listing their debt on TISE, allowing investors to contribute to these businesses indirectly. Green finance is another area on which both Guernsey Finance and Jersey Finance are keeping a close eye, as it gathers interest.

“At TISE, our strategy is to look at what the islands are doing and try to align ourselves as best we can in terms of our strategy, in terms of the jurisdictions in which Jersey and Guernsey are marketing, and the types of products that are right for the islands,” says Le Poidevin.

That’s all well and good, but what about the Panama Papers, the Paradise Papers, or the next alliteratively themed Paper that will no doubt be conjured up before too long – do these stories negatively affect this special relationship? 

“There’s no doubt that the recent negative developments in the offshore world, and the present political sentiment when talking about offshore jurisdictions, are having an impact on the use of Channel Islands companies for listing on the LSE,” Heggs suggests. “We only see this as a temporary trend though, as the significant advantages of using the Channel Islands remain the same and the sentiment of secretive offshore tax centres is entirely unfounded.” 

Negative press aside then, the Channel Islands and the City’s ‘special relationship’ seems to be all hunky-dory, doesn’t it?

“Post-Brexit, I would expect the UK to become even more international in outlook in terms of inbound, and outbound, investments,” concludes Alasdair Hunter, Partner at Bedell Cristin. “The Channel Islands are well placed to support these capital flows. Also, lower interest rates in Europe compared with the US may tempt US borrowers to raise debt finance in European bond markets – a positive for both the City and the Channel Islands.”