Private placements of equity securities or debt securities in Mauritius were not subject to any legislative framework until fairly recently. In contrast, public offers of these securities are regulated since the early 2000s by the Securities Act 2005, the Securities (Public Offers) Rules 2007 and, depending on which securities exchange they are listed, the Listing Rules of the Stock Exchange of Mauritius or the rules of the Development and Enterprise Market.
The Securities (Preferential Offer) Rules (the “Rules”) were proclaimed in 2017, with a view to regulate “preferential offers”, i.e.:
- private placements of securities by issuers; and
- offers or issues of securities made solely to
- sophisticated investors (such as banks, insurers, investment advisers, investment dealers, the Mauritian or foreign governments or statutory bodies, etc.); or
- related corporations of the issuer.
On 3 April 2021, the Rules were amended by the Securities (Preferential Offer) (Amendment) Rules 2021 (the “Amendments”) to clarify certain interpretative aspects of the Rules and to align the application with practical considerations that were not entirely coherent with market realities.
Restricted application of the Rules
The Rules apply to an “issuer”, meaning (a) any issuer issuing securities to 25 investors or above or (b) any reporting issuer .
The Rules do not generally apply to issuers incorporated or established outside of Mauritius and those offering their securities exclusively to persons residing outside of Mauritius. In other words, the application of the Rules is restricted to preferential offers made by Mauritian issuers and/or to Mauritian investors.
This change is welcome in that it clarifies the purview of the Rules, and therefore harmonises their scope with the existing legislation regulating business effected in or from Mauritius (as opposed to business done from outside of Mauritius, which is not regulated by our laws).
Simplified legal regime for issues of debt securities
The Amendments distinguish the treatment of equity securities and debt securities in two ways:
- unless the constitutional documents of an issuer provide otherwise, issues of debt securities need not be approved by the shareholders of the issuer; and
- therefore, the deadline of 12 months from the date of approval by the shareholders no longer applies in respect of the issue of debt securities.
Approval by shareholders no longer required (unless the constitutional documents provide otherwise)
Rule 4(3) initially imposed a requirement for the approval of preferential offers at a shareholders’ meeting. In the absence of any specific language at that time, shareholders’ approval was required prior to the issue of both equity securities and debt securities.
The Amendments brought about in Rule 4 render the process less cumbersome for debt securities, which now are sanctioned in accordance with the issuer’s constitutional documents. Accordingly, approval at a shareholders’ meeting is no longer needed, unless the constitutional documents contain such requirement.
In contrast, the new Rule 4(3)(b) imposes a shareholders’ approval solely for equity securities, and rightly so as a new offer or issue would have an impact on the existing shareholders.
The rationale for distinguishing the two categories of securities is that the issue of debt securities would not affect the shareholding of the issuer. However, an offer or issue of equity securities (be they of the same class or not) would necessarily have an impact on the existing shareholders, as those shareholders would be diluted and the voting and/or economic rights attached to the existing securities may be affected by the new shares so issued.
Nonetheless, the issuer should also bear in mind that the debt securities would for all intents and purposes qualify as incurring additional indebtedness, and it should consider whether third party approvals (notably from existing financiers) would be a pre-requisite to the proposed issuance.
Removal of the prescribed deadline of 12 months
Rule 5 previously set out a prescribed timeframe of 12 months from the date of the shareholders’ approval to complete preferential offers.
The distinction between equity securities and debt securities is replicated, such that the 12-month limitation period applies for equity securities only. To the extent that the Rules remain silent concerning preferential offers of debt securities, no deadline is therefore imposed for the completion thereof.
Once more, this distinction is understandable as the issuance of equity securities should be implemented within an agreed timeframe, the more so in light of the shareholders’ blessing.
As indicated above, debt securities would be treated in a similar manner to taking out loans, and completion of the issuance would depend on the issuer’s need for additional financing.
Wider definition of credit rating agency
Issuers of debt securities targeting 25 investors or more had an obligation under rule 8 to seek a listing on a securities exchange or be rated by a credit rating agency licensed under the Financial Services Act, i.e. Care Ratings (Africa) Private Limited or Global Credit Rating Company Limited.
The possibility of obtaining a credit rating either for the issuer itself or the debt securities was an attractive feature aimed at fostering confidence in the investor community. However, limiting the manner in which the credit rating would be obtained might not necessarily be conducive with the intention.
The Amendments remove the restrictive definition of “credit rating agency”, and issuers of debt securities may now seek a rating from international agencies licensed by one of the authorities identified in Appendix A of the International Organisation of Securities Organization Multilateral Memorandum of Understanding .
In addition to offering a broader choice of 124 international agencies to the issuer, having a credit rating from an international agency would further increase the issuer’s visibility on the market, and potentially improve the status of Mauritius as an attractive and reputable jurisdiction particularly in light of the recent grey-listing by FATF.