I OVERVIEW OF M&A ACTIVITY
Mauritius is a major financial centre and a gateway for local and international businesses for investment principally in Asia and Africa. Ranked 32nd in the World Bank Doing Business report for 2016, and first in the 2015 Ibrahim Index of African Governance, the country is a unique platform for structuring investments and doing business in the region.
From 2012 to 2016, various sectors, including the banking, financial and insurance sectors, witnessed M&A as part of the restructuring or expansion process of these companies. Local and multinational groups are structuring M&A in or through Mauritius to increase their exposure to the African region.
Locally, notable M&A include:
- a in 2016, Gamma – Civic Ltd, a leading supplier of building materials, construction and property in Mauritius, acquired a majority shareholding in Kolos Cement Ltd (previously known as Holcim (Mauritius) Ltd);
- b in 2016, ENL Land and ENL Investment amalgamated into ENL Land. This amalgamation will enable the newly amalgamated company to become the third-largest company listed on the Stock Exchange of Mauritius with an investment of over US$425 million;
- c in 2016, the newly incorporated National Commercial Bank merged with the Mauritius post and Cooperative Bank, creating a new company named MauBank Holdings Ltd;
- d in 2015, the Rogers Group acquired a 76 per cent stakeholding in Consilex Ltd, a management company involved in the global business sector. The Rogers Group later acquired a 70 per cent stakeholding in Kross Border, another management company involved in the global business sector, thereby enlarging its sphere of activities in the financial services sector. Furthermore, on 1 January 2016, Consilex Ltd and Kross Border amalgamated as a surviving company, Kross Border; and
- e in 2015, Sun Resorts acquired 100 per cent of the shares in Anahita Hotel Limited. After the acquisition of 50 per cent of the shares in 2014 from Alteo, Sun resorts acquired the remaining 50 per cent from Kingdom 5-KR-182 for US$40 million.2
It is noteworthy that in 2015, with respect to the construction sector, the effect of the acquisition of the majority shares of Kolos Cement Ltd (previously known as Holcim (Mauritius) Ltd) by Gamma – Civic Ltd for US$21million3 was subject to the scrutiny of the Competition Commission of Mauritius (CCM) insofar as to potential competition and monopoly concerns in the construction industry, namely in relation to the supply of cement. Following undertakings given by Gamma – Civic Ltd, the CCM finally decided to clear the acquisition of the majority stake in Kolos Cement Ltd by Gamma – Civic Ltd in December 2015.4
II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A
Our legal framework provides for the necessary platform for M&A.
Relevant laws and regulations affecting M&A activity in Mauritius include:
- a the Companies Act 2001;
- b the Competition Act 2007, the Competition Commission Rules of Procedure 2009, and the CCM Guidelines on Mergers;5
- c the Securities (Takeover) Rules 2010 enacted under the Securities Act 2005;
- d the Banking Act 2004;
- e the Employment Rights Act 2008;
- f the Sugar Industry Efficiency Act 2001; and
- g the Trade and Business Enterprises Mergers (Control) Act 1970.
The Companies Act provides, inter alia, the procedure for the amalgamation of two or more companies in Mauritius,6 which may amalgamate and continue as one company, which may be one of the amalgamating companies, or which may be a new company. It also regulates the merger or consolidation of a category 2 global business-licensed company incorporated in Mauritius with a company incorporated outside Mauritius. The Companies Act also provides the procedure for companies to enter into a scheme of arrangement7 as part of their restructuring process.
Under the Competition Act,8 an M&A transaction may be subject to review by the CCM if it has the effect of creating a restrictive business practice. Under the Competition Act, there is no mandatory requirement to notify the CCM of an M&A transaction. However, in cases where the transaction will trigger a restrictive business practice, the CCM will have the power to investigate it. The CCM will only consider the effects of a merger on competition. It will not block a merger with no competitive effects, and cannot, for example, prevent a takeover by a foreign investor merely because of concerns about the acquiring individual or company’s identity.9
The Trade and Business Enterprises Mergers (Control) Act regulates the effect of a merger on the employment of a person.10 The Sugar Industry Efficiency Act regulates M&A relating to companies engaged in the growing of sugarcane, the milling of sugar or any activity relating to the use of sugarcane by-products.
The Banking Act regulates mergers between financial institutions11 and provides12 that no merger, consolidation or acquisition between financial institutions is allowed without the approval of the Central Bank.13 The Central Bank will not approve such a transaction where it would result in a monopoly situation or substantially lessen competition unless it finds that the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest.
The Securities (Takeover) Rules, which are applicable to reporting issuers,14 regulate, inter alia, the conduct of a takeover15 offer, provide for restrictions on dealings and provide for the establishment of a takeover advisory panel.
It must be noted that in cases where a merger has the effect of changing the beneficial interest or shareholding structure of global business companies in Mauritius, the Financial Services Commission (FSC) will need to approve16 or be notified of the merger, as applicable.
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT
There have not been any recent amendments to the corporate and takeover law.
On the taxation side, the exemption of manufacturing companies from land duties and taxes has been extended indefinitely, but only in relation to the merger or acquisition of an ailing manufacturing company having accumulated income tax losses, and provided that prescribed conditions are met.
IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS
As per the World Investment Report 2015, overall, in 2014, the value cross-border mergers and acquisitions in Mauritius amounted to US$75 million.17 Mauritius recorded foreign direct investment (FDI), excluding direct investment in Global Business Category 1 companies, of approximately US$311 million in the period 2014–2015. FDI into real estate activities in Mauritius amounting to US$199 million continued to represent around half of the direct investment flows into the economy. The ongoing dominant position of the real estate sector in direct investment flows is accounted for by the integrated resort scheme/real estate scheme/integrated hotel scheme sub-sector to the tune of US$147 million. The share of direct investment in the accommodation and food service activities sector peaked with the acquisition of some hotel resorts in Mauritius by non-residents, reflecting growing interest in the country’s tourism sector.18
France was the leading investor in Mauritius (25 per cent) in 2014. FDI from the United States is on an upward trend, surging to US$46.4 million, and currently accounts for 11.6 per cent of total FDI. The flux of FDI from the Middle East, namely from United Arab Emirates, has surged to US$17 million (27.3 per cent). A similar trend is noted for FDI from the UK, increasing to US$25.3 million in 2014.
However, a marked decline in FDI has been noted from China (-78 per cent) and South Africa (-41 per cent) in 2014 compared to the previous year.19
Notable among cross-border mergers is the merger of CIEL Healthcare Limited, a subsidiary of Conglomerate CIEL Ltd, which increased its shareholding in The Medical and Surgical Centre Ltd. The Medical and Surgical Centre Ltd runs Fortis Darné Clinic, one of the most reputable private hospitals in Mauritius. In addition, the acquisition of 90.1 per cent in International Medical Group, a leading provider of private healthcare services in Uganda, is also notable, as it aims to strengthen the group’s presence in the healthcare sector in East Africa.20
Furthermore, Proparco, a French development finance institution, recently acquired 15 per cent in CIEL Healthcare Limited. This partnership is aimed at acquiring and developing a chain of private hospitals across Sub-Saharan Africa.21
V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES
i Significant transactions
Significant M&A that occurred in the past few years include the following.
Banking and finance sector
The year 2015–2016 witnessed major changes in the banking and finance sector in Mauritius. Further to the acquisition of the Bramer Banking Corporation by the government and the setting up of the National Commercial Bank (NCB) in 2015, the government also decided to merge NCB with the Mauritius Post and Cooperative Bank in January 2016. Following this merger, the MauBank Holdings Ltd (MauBank) was created. The main objective of the Maubank, is to support small and medium-sized enterprises in relation to business and financial management.22
In 2016, Kross Border, a management company operating in Africa, amalgamated with Consilex Ltd, a management company acquired by the Rogers Group in 2015, into a single management company known as Kross Border. The newly amalgamated management company aims at developing a better synergy between them to provide a better service in the financial services sector.
ii Hot industries
2015 witnessed several M&A in the tourism industry. In January 2015, WP Carey Inc, an American company specialised in sale and leaseback transactions, acquired the Plantation d’Albion Club Med, a luxurious hotel, for US$62.8 million.
The three hotels of the Apavou group of hotels, namely Indian Resort, Mornea and Moreva, were acquired by the TUI group, a leading investor in the tourism industry.
Another major transaction was the acquisition of the remaining 50 per cent shareholding in Anahita Hotel Limited by Sun Resorts.
Following the merger of Holcim Ltd (Switzerland) and Lafarge SA (France) into LafargeHolcim Ltd, the CCM opened an investigation in Mauritius because the two cement companies held 90 per cent of the market in cement in the country. Following an undertaking given to the CCM, LafargeHolcim Ltd decided to divest the shares it held in Kolos Cement Ltd (previously known as Holcim (Mauritius) Ltd) into another company, namely Gamma – Civic Ltd. The proposal was sent to the CCM, and following the undertaking given by Gamma – Civic Ltd, approval was given on the 8 December 2015 for the acquisition of 51 per cent shares held, directly or indirectly, by Holcim Ltd (now LafargeHolcim Ltd) in Kolos Cement Ltd (previously known as Holcim (Mauritius) Ltd).
iii Key trends
Cross-border mergers in the food and beverages sector
In 2016, PhoenixBev, a company involved in the manufacture and supply of beverages in Mauritius, recently acquired Edena, a subsidiary of Marbour Group (France) and a leader in the production of mineral water on Réunion Island. This acquisition will help boost the growth of PhoenixBev and help expand its business on Réunion Island. The acquisition of Edena will help Phoenixbev fulfil the demand of the very health-conscious Réunion Island clientele.23
VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS
M&A are traditionally financed by cash payments or security payments. However, financing of several M&A structured through Mauritius is increasingly being made through a leveraged buyout.
Various methods of securitisation are used by companies to secure loans taken to finance M&A, including the creation of share pledges, fixed or floating charges, pledge over bank accounts, guarantees or assignment of receivables.
It must be noted that recourse to private equity (PE) is a recurrent feature.24 Main stakeholders, such as Actis, the African Development Bank, International Finance Corporation, CDC Group Plc and Aureos, continue to structure their M&A through Mauritius.
PE funds structured in Mauritius mostly focus on infrastructural developments, agricultural products, information technology and telecommunications in India, and now increasingly in Africa.25 PE fund managers investing in Africa generally use Mauritius to benefit from double taxation agreements (DTAs) as well as for investment protection. PE funds can be structured in the form of a Mauritius-resident vehicle, administered and controlled in Mauritius.
It is also noteworthy that more than 20 global and specialised investment funds are listed on the Stock Exchange of Mauritius.
VII EMPLOYMENT LAW
The Employment Rights Act and the Trade and Business Enterprises Mergers (Control) Act are the two pieces of legislation that regulate employment issues with regard to M&A in Mauritius.
The Employment Rights Act provides for a Code of Practice (Code) in relation to collective bargaining with a view to promoting good employment relations. The Code provides that management must ensure that enterprise restructuring, including mergers, takes place in conditions of fairness and equity.26 Communication and consultation are essential. For example, when there are changes in management following a merger or takeover, the new managers are required to promptly contact the trade unions and take steps to explain any changes in policies affecting workers.
The Trade and Business Enterprises Mergers (Control) Act provides for the control of mergers of trade and business enterprises and other related matters. Where any person is likely to lose his or her employment by reason of a merger between two or more enterprises, any such new enterprise and merger shall require the prior authorisation of the Minister of Finance. Failure to obtain such authorisation entails criminal liability. The Minister will usually grant authorisation conditionally or unconditionally.
There have been no amendments to the above legislation in relation to M&A.
VIII TAX LAW
Formerly, under the Land (Duties and Taxes) Act,27 a deed witnessing the transfer of shares or property following the merger or takeover of manufacturing companies was exempted from registration duty, transfer duty and tax on transfer of leasehold rights in state land provided that the deed was duly registered on or before 31 December 2013, and the employment and period of service of all the employees of those companies are preserved as from the date of the takeover or merger.
Following the 2014 Budget, the above exemption from land duties and taxes is only applicable to the merger or takeover of an ailing manufacturing company that has accumulated income tax losses on the same terms and conditions relating to the safeguarding of employment as provided for under the Income Tax Act.28 This measure was implemented on 21 December 2013.
Mauritius enjoys an extensive double taxation treaty network, having concluded DTAs with various countries in Africa, Asia, the Middle East and Europe. The network of DTAs allows cross-border M&A to be structured in a tax-efficient manner.
Mauritius currently has DTAs with 43 countries.29 On 15 October 2014, the country signed a new DTA with the Republic of Malta. The DTA came into force on 1 January 2016. At the time of writing, five DTAs that are still awaiting ratification, being DTAs between Mauritius and Gabon, Kenya, Morocco, Nigeria and Russia. The new DTA between Mauritius and South Africa, signed on 17 May 2013, came into effect on 1 January 2015. Along with the new DTA, a memorandum of understanding was agreed in May 2015 by the two countries. Currently, four treaties are awaiting signature, being DTAs with Burkina Faso, Cape Verde, Ghana and Jersey.
Mauritius has also signed investment promotion and protection agreements (IPPAs)30 with 29 countries, including France, China, South Africa, Mozambique and recently with Zambia. Another 17 IPPAs have been signed between Mauritius and other countries, including Ghana, Kenya and Zimbabwe, but still await ratification. The structuring of M&A through Mauritius can therefore benefit from the added advantage of these IPPAs.
In addition, to enhance substance in Mauritius (that is, to determine whether the conduct of business will be or is being managed and controlled from Mauritius), the FSC of Mauritius recently elaborated new licensing conditions for category 1 global business licensed companies to determine whether a corporation is managed and controlled from Mauritius. The new conditions are to the effect that:
- a the corporation must have or shall have office premises in Mauritius;
- b the corporation employs or shall employ, on a full-time basis at an administrative or technical level, at least one person who shall be resident in Mauritius;
- c the corporation’s constitution contains a clause whereby all disputes arising out of the constitution shall be resolved by way of arbitration in Mauritius;
- d the corporation holds or is expected to hold within the next 12 months assets (excluding cash held in a bank account or shares or interests in another corporation holding a global business licence) that are worth at least US$100,000 in Mauritius;
- e the corporation’s shares are listed on a securities exchange licensed by the FSC; or
- f it has or is expected to have a yearly expenditure in Mauritius that can be reasonably expected from any similar corporation controlled and managed from Mauritius.
IX COMPETITION LAW
Under the Competition Act, notification of a merger or acquisition to the CCM is not mandatory. However, M&A are subject to investigation by the CCM in cases where the CCM is of the view that a merger situation exists31 and has resulted or is likely to result in a substantial lessening of competition within any market for goods and services.
To avoid any risk, parties to a merger or acquisition that is likely to lessen competition on any market usually choose to notify the CCM of the proposed merger or acquisition by applying for guidance under Section 47 of the Competition Act. Parties to such a merger or acquisition prefer to voluntarily notify the CCM and undergo an investigation into the proposed merger or acquisition before going ahead, rather than bearing the consequences of not notifying the CCM. Since the coming into force of the Competition Act in 2009, the CCM has been active in the investigation of possible anticompetitive behaviour by businesses in various sectors, including the insurance, banking and automotive sectors.
The merger of the insurance businesses of the Swan Group and Rogers Group and its effect on the market for insurance businesses, and the acquisition by Toyota Tsusho Corporation of the shares of CFAO and its effect on the market for retail distribution of small family cars and minibuses, were subject to investigation by the CCM. The CCM finally decided to clear these mergers at the Mauritian level. In the case of the merger of the insurance businesses of Swan Group and Rogers Group, the CCM cleared the merger after the parties provided undertakings to the CCM.
The Competition Act provides that a merger situation will be subject to review by the CCM where:
- a all the parties to the merger supply or acquire goods or services of any description, and will, following the merger, together supply or acquire 30 per cent or more of all those goods or services on the market; or
- b one of the parties to the merger alone supplies or acquires, prior to the merger, 30 per cent or more of goods or services of any description on the market; and
- c the CCM has reasonable grounds to believe that the creation of the merger situation has resulted in, or is likely to result in, a substantial lessening of competition within any market for goods or services. Substantial lessening of competition is assessed by considering how competitive the market was before the merger, and is likely to be after the merger.32
It must be noted that Section 61 of the Competition Act provides that where the CCM determines after investigation that an enterprise is a party to a merger situation, and the creation of the merger situation has resulted, or is likely to result, in a substantial lessening of competition within a market for goods or services, the CCM may give the enterprise such directions as it considers necessary, reasonable and practicable to remedy, mitigate or prevent the substantial lessening of competition and any adverse effects that have resulted from, or are likely to result from, the substantial lessening of competition.
The CCM has the power to require divestments and even the full unwinding of a merger or acquisition according to the circumstances. In the case of a prospective merger or acquisition, the CCM may give a direction requiring an enterprise to desist from completion or implementation of the merger or acquisition insofar as it relates to a market in Mauritius; divest such assets as are specified in the direction within the period so specified in the direction, before the merger or acquisition can be completed or implemented; or adopt, or desist from, such conduct, including conduct in relation to prices, as is specified in the direction as a condition of proceeding with the merger or acquisition. In the case of a completed merger or acquisition, the CCM may give a direction requiring an enterprise to divest itself of such assets as are specified in the direction within the period so specified in the direction; or adopt, or to desist from, such conduct, including conduct in relation to prices, as is specified in the direction as a condition of maintaining or proceeding with the merger or acquisition.
It is noteworthy that in January 2013, the COMESA Competition Commission (CCC) started its operation under the COMESA Competition Regulations 2004 (CCC Regulations), which cover anticompetitive practices and behaviour of a cross-border and regional nature. Mauritius is a member of the CCC; hence, M&A with a cross-border and regional nature element must comply with the COMESA Competition Regulations 2004.
With economic and political stability, strong democracy, an ideal geographical location and time zone, a sophisticated legislative framework and a skilled workforce, Mauritius has all the ingredients needed to continue to attract investors in the structuring of M&A.
Notable projects that would boost M&A activities in Mauritius include the development of the Heritage City project, which is aimed at decentralising the capital, Port Louis, and creating a smart city that will contain all the governmental departments in one place.
Furthermore, ENL Group has announced the creation of a smart city at Moka after the approval of the government. This project will cost ENL Group around US$199 million, and will be completed over a period of 10 years. The project will include residential properties, businesses, offices, schools, universities, hospitals and sports complexes.
Furthermore, Axis, a fund manager based in Mauritius, has acquired ApexAfrica Capital, a Kenyan stockbroker, for US$4.6 million. This acquisition was made through Mauritius Kenya Investment Holding. This acquisition will see Mauritius’ Axis enter the Kenyan stockbrokerage market for the first time, betting on its solid base of individual and corporate clients in East Africa to build on ApexAfrica’s existing clientele.
A merger is also proposed between GML Investment Ltd and Ireland Blyth Limited. The two entities intend to merge their activities to enable them to develop a strong operational synergy and to develop combined strategies to develop their activities both locally and abroad. The new amalgamated company will also be listed on the Stock Exchange of Mauritius. This amalgamation should be done by July 2016. These announcements show that there is scope to structure M&A in and through Mauritius. Having negotiated DTAs with 43 countries, and having various IPPAs in place, the opportunity and prospects for M&A activity in or through Mauritius is on the rise. 2016 and 2017 are therefore full of new opportunities for M&A.
1 Muhammad Uteem is the founder and head of Uteem Chambers and Basheema Farreedun is an associate at Uteem Chambers.
4 Decision of the Commissioners of the Competition Commission of Mauritius dated 16 December 2015.
5 CCM Guidelines on Mergers, November 2009, CCM. The CCM Guidelines on Mergers essentially focus on the standards that are used to assess whether a merger or anticipated merger has resulted in, or is likely to result in, a substantial lessening of competition.
6 Section 244 of the Companies Act 2001.
7 Part XVIII of the Companies Act 2001.
8 Section 47 of the Competition Act defines merger as ‘the bringing together under common ownership and control of 2 or more enterprises of which one at least carries its activities, in Mauritius, or through a company incorporated in Mauritius’.
9 CCM Guidelines on Mergers, November 2009, CCM.
10 Section 3(1) of the Trade and Business Enterprises Mergers (Control) Act 1970 provides that: ‘Where two or more enterprises intend, by way of merger, to create a new enterprise and any person employed by such enterprise is likely, by reason of the merger, to lose his employment, no such new enterprise and no such merger shall be created unless the Minister, on application made in the prescribed manner by such enterprises, gives his authorization.’
11 Financial institution is interpreted in Section 2 of the Banking Act 2004 as any bank, non-bank deposit-taking institution or cash dealer licensed by the Central Bank.
12 Section 32 of the Banking Act 2004.
13 Section 2 of the Banking Act 2004 provides that ‘Central Bank’ means ‘the Bank of Mauritius established under the Bank of Mauritius Act 2004’.
14 Under the Securities Act 2005, reporting issuers are issuers who either make a public offer of securities, have made a takeover by way of an exchange of securities or similar procedure, have their securities listed on a securities exchange in Mauritius, or have 100 or more shareholders.
15 Takeover is defined in Section 94(2) of the Securities Act 2005 as ‘an offer made by or on behalf of a person (‘offeror’) to acquire such securities of the offeree which will result in the offeror acquiring effective control of the offeree, either at one time or over a period of time’.
16 Section 23(1) of the Financial Services Act 2007 provides that no shares, or any legal or beneficial interest in a licensee, shall be issued or transferred except with the approval of the FSC.
17 World Investment Report 2015 – Reforming International Investment Governance.
26 Fourth schedule of The Employment Rights Act 2008.
27 Section 45A(3) and the eight schedule of the Land (Duties and Taxes) Act.
28 Annex 1 to Budget Speech 2014.
31 Sub-Part IV of the Competition Act covers merger situations subject to review by the CCM.
32 CCM Guidelines on Mergers, November 2009, CCM.