International financial centres Isle of Man and Mauritius, on the Irish Sea and Indian Ocean respectively, might soon emerge as joint launching pads for a clutch of fresh private equity funds that want to invest in India.
Isle of Man is frequently used as a stepping stone by Indian companies looking for a listing on London Stock Exchange (LSE) and Mauritius has long been the hub of foreign investors interested in Indian assets. “We see the two running parallel,” said Mike Edwards, director at international law firm Cains, about the possibility of both private equity funds and Indian companies using Isle of Man to access different markets.
Companies managing private equity funds are likely to use Isle of Man to invest in India instead of directly going to other centres such as Mauritius as the former is well regarded, said Edwards. Isle of Man has a triple ‘A’ rating from credit rating agencies Moody’s and Standard & Poor’s. Moody’s investment grade ratings for Mauritius are lower than Isle of Man’s.
From the other side, Indian companies are likely to continue using Isle of Man to raise money by getting listed in LSE’s Alternative Investment Market (AIM). A common stop in the route for private equity funds is Mauritius.
India has a tax treaty with Mauritius—companies registered in Mauritius don’t pay tax on the profits they make in India. Isle of Man, where the Indian companies are registered, has a near-zero rate of corporate income tax.
Some Indian companies have new firms registered in the Isle of Man, which facilitates smooth listing in AIM. Subsequently, these companies start a subsidiary in Mauritius, which invests in India.
“A majority of companies, last year, routed operations through Mauritius,” said Daniel Mackelden, who heads Cains’ London office, referring to Indian companies which accessed the UK capital market.
Cain, an Isle of Man incorporated international law practice, has worked with seven Indian companies, including real-estate firm Unitech Limited, which listed on LSE’s AIM in the last six months. AIM, a part of LSE which has less-stringent listing rules, is becoming popular with emerging market firms that want to raise capital in London. It has six more listing deals of Indian companies in the pipeline. The total market capitalization of all Indian companies listed in the UK is £2.3 billion (Rs19,780 crore), of which firms registered in the Isle of Man account for a market capitalization of £2.1 billion.
Without Mauritius’ tax treaty with India, the process of using Isle of Man would be more difficult, felt Edwards. The same logic may apply to private equity funds where the asset management company might be registered in Isle of Man, but uses Mauritius as a stepping stone to invest in India.
The Indian government has indicated that it might end the tax pact with Mauritius.