Business community welcomes review of 60/40 ownership rule
Government has announced it’s reviewing the 60/40 ownership rule in a bid to help companies in Bermuda raise capital in the tight economy.
The move was yesterday welcomed by the business community, with the Chamber of Commerce and Bermuda Stock Exchange both giving it a thumbs up.
And an investment advisor told
The Royal Gazette that local companies could use an injection of foreign capital right now.
“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,“ said Governor Sir Richard Gozney as he read the Throne Speech yesterday.
“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’”.
To that end, the Government said it had also decided to review Bermuda’s ability to attract and service potential investors here.
“The Government will soon launch an inter-agency partnership that will provide a rapid-response capability in support of plans and projects considered economically important to Bermuda,” the Governor said. “The unit will provide more red carpet and less red tape.”
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.
At this time only Butterfield Bank and Bermuda Commercial Bank are not bound by the 60/40 rule, but other local companies are HSBC is not considered a local company.
Financial advisers have expressed concern about liquidity on the BSX and investors’ ability to exit sizeable investments.
Chamber of Commerce president Stephen Todd told
The Royal Gazette yesterday a review of the 60/40 rule would be welcomed and members appeared to all support it.
“As I understand it they [Government] is looking to encourage an influx of capital to assist local companies,” Mr Todd said. “Without the benefit of having more detail we will have to wait and see what is forthcoming.”
Government has not yet provided specifics on the review. Last night a Government spokesman said: “The number one job of this Government is to provide employment for Bermudians. 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 job for our people.”
Bermuda Stock Exchange CEO Greg Wojciechowski said yesterday he fully supported a review.
“The BSX has always taken the position that publicly listed companies should not be bound by ownership or transferability restrictions if they so choose,” Mr Wojciechowski said.
“Sixty/Forty does not constrain available Bermuda capital to Bermudian investment it only constrains access to non-Bermuda capital by businesses.”
He said in Bermuda capital formation has largely been achieved two ways: through institutional lending and/or offering equity to existing or new shareholders.
“A company may be limited to its options for new capital due to the savings pool available in Bermuda,” he said.
“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.
“Ownership restrictions on public companies impact the price discovery process which occurs on stock exchanges serving their domestic capital markets.
“In respect of the effectiveness of a domestic capital market and its ability to support corporate capital raising exercises, restrictive provisions will, over time, cause the market to slow and eventually seize.
“If shares are not freely transferable, there reaches a point where the maximum take up of shares reaches its statutory limits and further trading activity is stifled. When this happens price discovery, based on the principles of supply and demand, reflects the inefficiency of the market and market prices for public companies becomes distorted and skewed, having a negative impact on the company and its shareholders.”
Anchor Investment Management CFO Nathan Kowalski said local companies needed new capital.
“I am very much in favour of eliminating the 60/40 rule and freeing up an avenue for further direct investment,” he said.
“A number of local companies could use new capital and this will simply open up the entire opportunity set. Bermuda is not an island. We all live and work in a global and interconnected economy now. Capital will always flow to where it is treated best.”