60/40 rule relaxation will focus on listed companies
Government has no plans to scrap the 60/40 ownership rule altogether, and a main focus of the planned review would be relaxing the requirements for public companies in order to encourage more foreign investment in Bermuda.
The Royal Gazette understands any legislation arising from a review of the Companies Act 1981 and 60/40 rule could be tabled in Parliament as early as this parliamentary session.
PLP candidate and commentator Walton Brown Jr, who recently spoke out strongly against abolishing the 60/40 rule, said he would actually support relaxation of the rule for publicly listed companies.
“Listed companies mean strict reporting and regulatory criteria are in place; they provide opportunities for local ownership; and they will be large companies providing employment opportunities,” Mr Brown said yesterday.
The Royal Gazette has learned that the thinking behind the review was concern by some in the business community and in Government that local companies need greater access to capital and the 60/40 rule may be holding back the Bermuda economy.
Some of the largest BSX-listed companies include Argus, BF&M, Belco-owner Ascendant, and BTC-owner KeyTech.
Government announced in last week’s Throne Speech that it was reviewing the 60/40 rule in a bid to help companies in Bermuda raise capital in the tight economy.
Giving more detail on the announcement, a Government spokesman told us that relaxing the 60/40 rule could lead to more jobs for Bermudians.
“The number one job of this Government is to provide employment for Bermudians,” the Government spokesman said. “If it is found that the 60/40 rule restricts job creation for Bermudians, the Government is prepared act to ensure that we welcome investment to our shores that creates jobs for our people.”
The move has been given the thumbs up by the Chamber of Commerce and Bermuda Stock Exchange.
In an October column in this newspaper, Mr Brown had raised a number of concerns about relaxing it altogether though.
“The 60/40 rule requiring companies doing business in Bermuda be beneficially owned by 60 percent Bermudian shareholders has been relaxed as the capital requirements of certain sectors increased - tourism, telecommunications, banking, for example,” he wrote.
“There will no doubt be other areas where it makes sense to abolish 60/40, but to abandon it wholesale will create a dramatically different, and not necessarily better Bermuda. Given Bermuda’s small economic size it is entirely possible for international capital to gobble up most businesses. Free traders and those who call for the elimination of all forms of protectionism celebrate open markets and see it as a sign of progress. Do we want a Bermuda where most of the businesses are not owned by locals? Are we content to be employees and not equity partners? What do you see as the consequences? Does it matter?
“We can attract high-end brands to Bermuda within the framework of 60/40 as the presence of Louis Vuitton, Rolex and Ferragamo attest.”
As part of the Regeneration of Bermuda’s Economy initiative, former Premier Sir John called for the complete removal of the 60/40 rule in a recent Opinion piece and he said - perhaps giving insight into the Government review: “Any public utilities or broad service organisations that impact the General Bermuda public which are exempt from 60/40 should be listed on the BSX (Bermuda Stock).”
In last week’s Throne Speech, Governor Sir Richard Gozney announced: “While the 60/40 provision is generally thought to have served Bermuda well over the years, now there is a strong view that it could be blocking businesses from access to foreign direct investment.
“Government will table legislation to encourage further foreign investment in Bermuda. A review of the Companies Act 1981 has been undertaken. In particular the 60/40 ownership regulation was examined with the express aim of finding ways to allow local businesses easier access to capital.”
The Government said that previously when discussions were held, there “was both more resistance and a more protectionist stance adopted by stakeholders. That has changed. Given today’s economic landscape, there is apparent agreement between all business sectors that they need greater access to capital. In effect, today’s mantra now states: ‘Free up Bermuda’.”
The 60/40 ownership rule means that any company that’s listed as a local company must be owned by a 60 percent majority of Bermudians or Bermudian companies, the other 40 percent can be owned by people or institutions from outside Bermuda.
The banks and hotels, for example, are not bound by the 60/40 rule, but other local companies are.
Bermuda Stock Exchange CEO Greg Wojciechowski said he fully supported relaxing the rule: “Sixty/forty does not constrain available Bermuda capital to Bermudian investment, it only constrains access to non-Bermuda capital by businesses. Having limitations on the free transferability of a public company’s stock limits and restricts the company’s ability to freely access new equity capital and to use its stock as ‘currency’ for corporate needs.”