World Finance

Advisories eye Moroccan deals

Posted on October 21, 2010 by

Kettani Law Firm (KLF) is a major Moroccan business law firm founded in 1971 by Professor Azzedine Kettani who was admitted to practice as a lawyer in 1968 and is approved by the High Court of Justice of the Kingdom of Morocco. He was joined in 1992 – after internships in France and the US – by Nadia Kettani, who is the Head of the International Consulting Department while supervising some areas of the Litigation Department; and Rita Kettani in 1993, who is the Head of the Commercial Department, the Litigation Department and the Labour Law Department. The firm acts for banks and other financial institutions, international businesses, major public and private companies and government departments.

KLF covers the whole spectrum of financial and business activities, and is an acknowledged leader in the fields of corporate finance, banking, project finance, corporate and commercial law. Areas of particular expertise include stock exchange law, aviation law, telecommunications regulations, energy, tourism, labour law, intellectual property, audits and IPOs. Additionally, the firm has a great deal of experience in arbitration and litigation as well as handling all forms of commercial disputes.

International experience
KLF has handled a number of high profile projects for clients around the world. These include advising France Télécom as a potential buyer of Maroc Télécom, the national telecommunications operator, for $2.3bn; and Telefónica’s bid of $1.1bn for the acquisition of the second GSM line. The firm has also developed expertise in the energy industry field, including project finance of $1.6bn for Jorf Lasfar, and of $500m for a wind farm. The firm recently acted as adviser in the following cases: a major British company in the acquisition of the Moroccan state-owned tobacco company Régie des Tabacs for approximately €1.3bn; the merger between two major American computer companies; and the merger between two international confectionary companies.

KLF were the advisors to the international managers to the Morocco government for its non-guaranteed sovereign eurobond issue for €400m. KLF has handled a significant number of major M&A projects, some of which include the restructuring of HP and the acquisition by Coca-Cola of Moroccan companies. The substantial merger of the Moroccan refinery Samir with SCP was also handled by the firm. KLF has advised international bidders during the numerous privatisation bids in Morocco in different areas. KLF advised local banks for the financing of the acquisition by Altadis of 80 percent of Régie des Tabacs for €300m. KLF has also advised Lydec (a subsidiary of Suez) for the outsourcing of its pension scheme for €250m, €100m of which was through a limited recourse bond issue. KLF advised local banks for the financing of the acquisition by SPT (a subsidiary of Vivendi) of 16 percent of Maroc Telecom for €500m. KLF has advised Roche SA locally for the sale of its over-the-counter pharmaceutical business to Bayer. Transaction values worldwide are in the region of €2.4bn. KLF is currently advising large pharmaceutical companies including Novartis Pharma regarding the reorganisation of their business in Morocco.

KLF has also advised on the IPO of Maroc Telecom on the Casablanca stock exchange and the Paris stock exchange (Euronext) as counsel to Merrill Lynch and BNP Paribas (€800m), the upgrade of the Samir refinery as counsel to the banks (about $700m) and refinancing of Méditel’s international debt as counsel to the banks (about €600,000). Also, KLF advised local banks for the investment of Four Seasons in Morocco (€100m) and is currently advising developers on large tourist projects in Morocco.

KLF has also advised IFC in some of their recent investments in Morocco.

Energy and renewable energy
The firm has been present in the energy sector advising blue chip clients with regards to exploration of oil and gas and exploitation of hydrocarbon permits.

The firm has also assisted in the following large energy projects: Ain Beni Mathar (Thermal-solar energy plant), Jorf Lasfar (coal-fired plant), Koudia Al Beida (wind farm – Northern Morocco), Tarfaya (wind farm), Safi bid (coal-fired plant).

KLF has also advised Masen (the Moroccan Agency for Solar Energy) regarding the solar power projects in Morocco.

For more information Tel: Nadia Kettani +212 522 43 89 00; nadia@kettlaw.com

Investors seek Med returns

Posted on October 21, 2010 by

Cyprus has become the destination of choice for investors in search of an ideal location for their company headquarters and operational activities. Cyprus, which has a long established reputation as a safe and secure location for commercial and business activities, continues to develop into an ideal hub for doing business between the Middle East and Europe. Cyprus offers peace of mind and ease of doing business in a professional environment and the surroundings of a sophisticated culture and advanced quality of life, both to multinationals and small and medium enterprises. The European Union (EU) is one of the most attractive FDI destinations: by investing in an EU member such as Cyprus, a market of over 500 million citizens becomes immediately available.

An EU member state since 2004 and a member of the European Monetary Union since 2008, Cyprus provides a thriving market oriented economic system with the lowest corporate tax regime in the EU at 10 percent, combined with a range of double tax treaties with 45 countries worldwide. Cyprus offers relatively lower operating costs with high quality services, including banking, tax accounting, auditing, business administration, legal processing, trustee, investment, brokerage and funds management.

The Cyprus economy has been growing at a steady pace of 4.5 percent per year, and has weathered quite well the recent global financial crisis, as is evidenced by the slight decrease in growth observed in 2009. Cyprus’ real GDP growth rate is well above the average growth rate of the EU 27 as well as that of the eurozone. The full liberalisation of the capital market along with the elimination of tariffs and quantitative restrictions, fully harmonised with the European Union laws, presents new promising opportunities for foreign investors.

In terms of FDI, in 2009 Cyprus attracted a total of €4,493m in FDI compared to €3,112m in 2008 and €1,725m in 2007. Cyprus demonstrates a solid FDI performance and potential: according to the latest World Investment Report published by the United Nations Conference on Trade and Development, Cyprus ranks among the front runners of the world in terms of both “Inward FDI Performance” and “Inward FDI Potential Index”.

In addition, the low risk of the economy of Cyprus is reflected in key economic indicators.

– Cyprus ranked 34th out of 133 countries by the World Economic Forum Global Competitiveness Report 2009-2010
– Cyprus’ economy was ranked 24th most free out of 183 countries in the Heritage Foundation 2010 Index of Economic Freedom
– Cyprus ranks 40th out of 183 countries in the World Bank’s DoingBusiness 2010 Report

These scores reflect the fact that the economy of Cyprus enjoys solid investment, monetary, trade, labour, business and financial freedom. An independent judiciary system results in a robust and transparent legislative and regulatory environment open to foreign competition.

Cyprus has completed a programme of reforming all its finance sector legislation in line with international best practice and has put a simplified, effective and transparent tax system in place that is fully EU, OECD, FATF and FSF compliant. Cyprus possesses an advanced transport and telecommunications infrastructure with state-of-the-art high-speed internet and mobile telecommunications, two international airports and deep-sea ports in Limassol and Larnaca, with close geographic proximity to the Suez Canal. The shipping industry accounts for four percent of the GDP.

In addition, Cyprus offers highly qualified and multilingual talent. In 2009, 52 percent of all Cypriot university students studied abroad, mostly in the UK and US, in fields such as business administration, accounting, law and engineering. Additionally, 47 percent of the population in the 25-34 age bracket have tertiary education compared to the EU27 average of 29.9 percent (2007).

Cyprus is located in the ideal geographical position and can act as a hub for investments to Europe and to countries in the Middle East, Gulf States, Africa and Asia. Cyprus provides the ideal environment to set up business operations effectively and efficiently. Cyprus can fully cater to business needs ranging from registering and setting up a company’s operations to managing EU, North African and Middle Eastern clients at a considerably lower cost.

Cyprus is committed to sustainable growth and economic development. And with pristine beaches and enviable weather, Cyprus blends a quality of life with maximum business benefits, catering to individuals and families.
Companies at all stages of the process leading to the establishment of a presence in Cyprus – be it information gathering, conducting a site visit or even implementing a business plan in the country – have a partner on the ground: the Cyprus Investment Promotion Agency (CIPA).

CIPA was established with a Council of Ministers decision in 2007 and is registered as a not-for-profit company limited by guarantee. CIPA has a threefold mandate:

– to promote Cyprus as an attractive international investment centre in key priority growth sectors
– to advocate reform in Cyprus required to improve the regulatory and business environment and infrastructure
– to provide investor support with after care and further development services

“Our role is to support, in any way that we can, foreign investors that want to do business in Cyprus,” says Mr Sotiris Sotiriou, Director General of CIPA. “The organisation provides added value to foreign investors by providing information, facilitating investor needs, and advocating reforms in the business environment”.

For more information Email: info@cipa.org.cy; www.cipa.org.cy

Austria relaxes legal hurdles

Posted on October 21, 2010 by

In the past, the registration of a branch of an English company in Austria encountered significant legal resistance and was often rejected by the courts. The cause of this resistance was more often than not a lack of understanding of the Austrian courts of the legal structure of English companies and the inability of the applicants explaining the characteristics of English companies to the Austrian courts. With the recent decision of the Commercial Court of Vienna the registration of an English limited company was accepted and the resistance was finally broken. BMA Brandstätter Rechtsanwälte GmbH represented the English limited company in this case and successfully registered the branch in Austria. By following the steps which led to this positive decision, the registration of English branches in Austria should be trouble-free in the future.

The origins of these problems are the differing legal systems. As well known that in England the common law system is in legal force whereas Austria is a civil law country. These differing legal systems led to essential differences in the company laws of both countries.

In England the ultra vires doctrine has been in legal force since the landmark decision of 1875 of the House of Lords in the case Ashbury Carriage Company v. Richie. According to the ultra vires doctrine a company’s legal capacity is defined by its memorandum of association. Therefore the memoranda of association of English companies were drafted in particularly extensive and detailed ways, especially with regard to the scope of business. That was done to ensure the companies were given the necessary legal capacity and their directors the necessary capacity to act for the company. In accordance with the ultra vires doctrine, acts of the directors of the company exceeding the scope of business of the company are considered void. This often led to conflicts with contractual partners and creditors of such companies.

The Companies Act 1985 abolished the ultra vires doctrine and explicitly allowed general clauses fixed in the memorandum of association. Now, the Companies Act 2006, in contrast to the ultra vires doctrine, regulates in section 31 that in case of doubt the scope of business of a company is unrestricted, as long as there were no restrictions explicitly made. Furthermore, the limitation of directors’ capacity to act was basically abolished by sections 39 and 40 of the 2006 act.

Despite these changes in the legal system in practice, very often the old memoranda of association are still in use in which one can find such provisions as:

– “To invest and deal with the monies of the Company in such shares or upon such securities and in such manner as from time to time may be determined.”
– “To lend and advance money or give credit on any terms and with or without security to any company, firm or person …, to enter into guarantees, contracts of indemnity and to secure or guarantee in any manner and upon any terms the payment of any sum of money or the performance of any obligation by any company, firm or person …”
– “To borrow or raise money in any manner and to secure the repayment of any money borrowed raised, or owing by mortgage, charge, standard security, lien or other security upon the whole or any part of the Company’s property or assets …”

Usually there are no such provisions in Austrian memoranda of association. The ultra vires doctrine does not apply in Austrian company law, the legal capacity of legal entities is basically unlimited. In particular, the legal capacity is independent of content and range of the company’s scope of business.

If an English company wants to register a branch in Austria with a memorandum of association containing such provisions as quoted above, such provisions are interpreted by the Austrian courts in the sense that the company wishes to do banking business. As a prerequisite the courts demand a licence according to the Austrian banking regulations. Since the English company actually is not involved in any banking business, does not intend to become so, and is thus not prepared for obtaining a banking licence, the registration of a branch often fails because of such misunderstanding.

During the registration procedure of the decision quoted above the English company successfully explained to the court the differences between the two legal systems and clarified the misunderstanding about the content of the English memorandum of association and the actual activities of the company.

It was outlined to the Commercial Court of Vienna that content and range of the memorandum of association is still influenced by the ultra vires doctrine. Furthermore it was explained to the court that the legal term of banking business is harmonised by the directive 2006/48/EU. Therefore, banking businesses that require a licence in England require a licence in Austria too and vice versa. Requiring a licence from an English company that does not need a licence in England would be a violation of Austrian banking regulations. This would constitute a violation of the harmonised legal term of banking business and at the same time a violation of the principle of freedom of establishment according to articles 49 and 54 of the EU-treaty in the Lisbon version.

Crucial for the understanding and the correct interpretation of such provisions of English memoranda of association as quoted above is the fact that the company only deals with its own money and not with money from others. This is the essential difference to the banking business, where it is all about money from customers. Taking out credits or issuing bills of exchange is usual commerce and no banking activity. Finally it was explained to the court in this case that according to the Austrian banking regulations a banking business is only given if its activities exceed a certain quantitative threshold. Sporadic credit and loan accommodation – as it is usual in commerce – is not meant to be banking business.

Considering the legal characteristics during the registration process of a branch of an English company in Austria and explaining these characteristics to the court should make the registration of English branches trouble-free in the future.

Dr Jürgen Brandstätter is Managing Partner at BMA Brandstätter Rechtsanwälte GmbH.

For more information www.bma-law.com

Caribbean group leads region’s internet banking

Posted on October 21, 2010 by

In a recent address to the Trinidad and Tobago Coalition of Services Industries, Larry Howai explored what ‘innovation’ meant to his organisation. He identified innovation as intentionally ‘bringing into existence’ something new that can be sustained and repeated and which has value in the real world, such as making new tools, creating new products or enhancing processes, all aimed at greater productivity. Innovation allows human beings to accomplish something which was previously unattainable. Furthermore, First Citizens visualises innovation as the ability to see change as an opportunity – not a threat.

First Citizens has always been on the forefront of innovation in banking in Trinidad and Tobago. From its very first decision to distinguish itself by investing in state-of-the-art technology to focusing on customers’ needs, to creating the country’s first real-time banking platform within the local financial sector, First Citizens has sought to be the pioneer in innovative banking solutions in Trinidad and Tobago and the Caribbean region.

In 2000, First Citizens again led the industry by introducing the first internet banking service in the English-speaking Caribbean. This was followed by being the first to launch mobile banking in Trinidad and Tobago. In order to maintain its competitive edge in offering customers financial solutions, First Citizens partnered with distributors and manufacturers to provide package offerings to customers. Also, in an effort to provide safe and secure transactions without the use of cash, hand-held point of sale devices were provided for both the restaurant and distributive trades (delivery sales trucks) industries.

The innovations continued in training and other efforts, all with the customer as First Citizens’ main focus. According to Mr Mario Young, Assistant General Manager – Retail Banking, First Citizens also undertook in the last couple of years the “Customer Service Excellence Programme”. This programme focuses on the delivery of service that meets customers’ expectations. The programme has several pillars: the People Pillar, which addresses the training of staff to deliver exceptional service, address customer concerns, manage customer queries, and be able to take them basically “from hell to heaven in 60 seconds”; the Process Pillar, where various service delivery processes and operating systems were reviewed and improvements made to delivery time, delivery quality, and the overall experience of the customer; and the Physical Pillar, the redesigning of our branches to conform to standards of uniformity in “look and feel”, layout and design as well as customer taste.

The slowdown in global economic activity in 2008 and the continued decline in export prices of energy-related commodities adversely affected the local economy, as well as those of Caribbean countries. However, as reported in the First Citizens Group Annual Report, at the end of the financial year ended September 30 2009, in spite of challenging market conditions First Citizens Group reported a profit before tax of $588m. This profit represented $84m or 16.7 percent over the $503m earned in September 2008. At the end of September 2009, profit after tax was recorded at $537m.

This represented a 15.9 percent increase over the previous year. The Group’s assets increased from the previous year by over $12bn or 75.2 percent, closing at $27.8bn and resulting in a return on average assets of 2.5 percent, and a return on average equity of 16 percent. Increases in net interest income, other income, and assets all contributed to the financial success over the past year. In August 2010 First Citizens successfully raised a TT$500m seven year 5.25 percent bond on the local market, solidifying investors’ confidence in the bank.

At home in Trinidad and Tobago, First Citizens has been awarded the South Chamber of Commerce Tyrone Samlalsingh Pinnacle Award three times for Excellence in Innovation, Communications Technology and E-Commerce. The organisation has also won international acclaim as in 2009 the Bank of the Year Award was received from World Finance, Latin Finance, and The Banker. This hat-trick is unprecedented among Caribbean financial institutions, and underlines the strong performance of the group. Credits from these three independent, world recognised sources indicates that the group is well on its way to attaining its goals of superb financial strength, prudent risk-management, memorable customer experiences and sound corporate governance.

This is in addition to consistently being awarded favourable ratings by global financial ratings entities like Standard & Poor’s among others. In 2009, Standard & Poor’s and Moody’s maintained the group’s investment grade rating at BBB+ and Baa1 respectively. These ratings confirmed the financial standing of the group, which remains the highest-rated, wholly local financial institution in Trinidad and Tobago, and one of the top-rated, indigenous banks in the English-speaking Caribbean.

At First Citizens, the mission is “to build a highly profitable financial services franchise renowned for innovation, customer service, and sound corporate governance”. It is for this reason the group is constantly improving and enhancing or developing new or existing features with the intent of improving the customer’s experience.

Is the recovery still under construction?

Posted on October 21, 2010 by

It used to be said that you could measure a city’s economic wellbeing in direct proportion to the number of tower cranes visible along its skyline. But now, with so many building projects shelved or in limbo awaiting remission from the downturn, the exact opposite is often true, with those erstwhile symbols of prosperity standing mournfully idle as an ironic reminder of better times.

With some exceptions, the picture across Europe is fairly uniform. Recent Atradius analysis, in its monthly Market Monitor, shows a pattern of continuing pessimism.

In the Netherlands, for instance, where traditionally the construction sector has accounted for four percent of GDP, the current poor level of construction activity is seriously affecting the economy, with residential building output down 44 percent in the first half of this year, the number of building permits down 32 percent year on year, and corporate insolvencies in the construction industry now double that seen in the period 2006 to 2008.

In Belgium, as in many other countries, public investment is throwing a lifeline to the sector, while private investment continues to languish, and the trend of increasing insolvencies seen in 2009 has continued into 2010. In France, the number of new orders – enough to provide only about six months of building activity – is way below the norm and a genuine cause for concern.

Construction has in the past accounted for around 10 percent of Spain’s economy, but the property boom – for so many years a very visible feature of the Spanish landscape – has turned to bust. Industry leaders are now pressing Prime Minister Jose Luis Rodriguez Zapatero for urgent talks so that they can air their protests against his government’s announcement of a proposed cut of €6.4bn in infrastructure spending. It’s a dilemma: Zapatero needs to cut the sky-high deficit, but adding to the already heavy unemployment benefits burden (the country’s unemployment level now tops 20 percent) won’t help.

Concerns over cuts in public spending to reduce government deficits are of course not restricted to Spain, and warnings have been voiced in many other countries that cuts in capital spending programmes may hamper the fragile recovery in the construction industry. And it’s not just in the realm of public works that the tentative recovery may be tipped off balance. In the UK, for instance, where there has been a small increase in public sector building of late, activity in the private residential sector is looking decidedly shaky. Demand has been subdued by stricter mortgage lending criteria and uncertainty over the future direction of house values.

Unsurprisingly, in Ireland, as in Spain (both of which have recently received assistance for their construction industries from the EU Globalisation Adjustment Fund), the importance of construction to the overall economy makes its continuing contraction that much more critical. Over the past two years, the number employed in the sector has fallen by over 123,000, accounting for a massive 46 percent of Irish job losses in that period.

However there are glimmers of light. The German construction industry is seeing some growth, albeit low, helped considerably by major infrastructure projects – the result of a strong public private partnership programme. Prospects for some other European countries, including Poland and Slovakia, are also more optimistic, driven by much needed infrastructure projects.

No matter what the current situation and outlook in different countries, Atradius’ advice to those contemplating entering into business dealings with companies in the construction industry is to look for signs of potential financial difficulty, for instance disputes that may seem spurious or requests for extended terms of payment, and resolve these issues swiftly. Vendors should also take note of the age and size of their potential customers: most bankruptcies affect smaller, less well established firms. As a leading global credit insurer, when asked to underwrite the trading risk on a construction firm, and to arrive at an accurate and realistic assessment, Atradius always seeks the most recently available financial information on the subject firm, and looks closely at its banking facilities, liquidity, asset management, projects in hand and cash flows.

Simon Groves is a senior manager of corporate communications at Atradius Credit Insurance NV. The Atradius Market Monitor is available to download from www.atradius.com

Expanding Taiwan

Posted on October 20, 2010 by

Trying to find a success story in the financial industry from the past few years can be nearly as difficult as trying to untangle the global economic mess. With so many firms lying in ruin, it is a surprise to come across one that has managed not only to grow in its home country, let alone entering foreign markets.

Cathay Life, based in Taiwan and with a steady growth record since 1962, has achieved in the last five years a feat unheard of among its competitors: entering the larger China and Vietnam markets.

The accomplishment owes thanks to the winning combination of strategic organisation, a well rounded risk management framework, strong cross-selling capability, and a clear focus on customer satisfaction.

Cathay Life, a member of Cathay Financial Holdings, recorded a total asset of NT$2,742.87bn in 2009 and boasted over seven million customers holding ten million policies. The company is the leading life insurer in Taiwan and has been dominating the industry for more than 40 years.

Notwithstanding a global recession, the company has managed to maintain growth and expand to larger markets in emerging Asia. “For the last five years, Cathay Life has successfully entered the China and Vietnam markets at full speed, and Cathay Life is the first Taiwanese insurance company to expand into these countries,” states Chang-Ken Lee.

“Cathay Life began to develop business in Shanghai in 2005 and there are now eight branches (including the head office) in China. In 2008, Cathay Life also began to develop in Ho Chi Minh City and there are now five branches (including the head office) in Vietnam. Cathay Life strives to become the best financial institution in Greater China and emerging Asia.”

Key elements of success
It is in organisation and dedication that this insurer excels, as it seeks not only growth for the company but also profits for the investors.

“Cathay Life defines long-term success as our abilities to enhance shareholder value, to meet customer needs, and to keep the best talent in the industry,” Chang-Ken Lee explains.

Cathay Life stands among the Forbes Global 500 on its strength in the five key areas including a well-rounded risk management framework, strong cross-selling capability, new business value creation, innovative service processes and a culture of sharing.

“Cathay Life exercises strong enterprise risk management to control its major risk exposures. As the largest domestic life insurer with a good business track record, Cathay upholds a prudent risk management philosophy along with a proactive practice.

“Riding on strong financial strength and cross-selling synergy, Cathay Life’s new business premium income achieved a 27 percent yoy growth at a 28.3 percent market share with an all-time high of NT$261.6bn in 2009. Institutions to survive this crisis with their financial strength intact are taking over market shares from their weakened competitors.”

In terms of new business value creation, it includes face-to-face communications by which the agents design tailored financial solutions for individual customers. A sales force of 27,000 is the largest in Taiwan, producing a market share of 32.2 percent in terms of new business premium from the agent channel in 2009.

“In terms of the agent channel, Cathay Life holds the largest market share in the industry. Moreover, Cathay Life takes the lead in the industry and develops the most diversified distribution channels including banks, direct marketing call centres, business service counters in airports and the student group insurance service network to create new channel value and profits.”

Maintaining competitive advantages
Cathay Life is very proud to be offering services that run across a multi-channel service platform, providing clients with a more user friendly communication portal. They employ sales agents to offer not only advice on a variety of topics including how to minimise financial risks, but also a comprehensive financial planning service.

Furthermore, the call centres provide customer care regarding enquiry or feedback, whilst the company website offers extensive information.

Agents are provided with a state-of-the-art learning platform to encourage personal growth and development. This platform offers the employees of Cathay Life online learning opportunities as well as an in-house satellite channel through which all agents in the company can “share their own knowledge and experience”. Indeed, one of the company’s goals is to be a “learning organisation”.

Strengthening customer relations
It is not just about reaching the top of the financial sector that has been the force driving Cathay Life. The company also harbours strategies to ensure that it stays there.

“We believe we have achieved sustainable growth because it is based on the value that we bring to our clients,” Chang-Ken Lee points out. “Life insurance is a people-oriented business. Cathay Life is devoted to fulfilling all aspects of customer needs.”

For more than 40 years, Cathay Life is constantly motivated by its commitment to serving the customers while strengthening the communication channels. The company’s practice of human resource management and corporate social responsibility makes Cathay Life the brand of choice for many in the market for life insurance.

“Our decision making process is customer-orientated and we make the best effort to ensure timely and accessible services. Cathay Life has realigned its brand promise in recent years to ‘Customer First in Pursuit of Excellence’ as we are eager to create value for customers and to exceed their expectations.

“Last but not least, consistent, innovative and value-added services as well as fast and satisfactory solutions for client complaints further demonstrate Cathay Life’s long-term commitment to our customers.”

A culture of ongoing service innovation is the backbone of Cathay Life’s competitiveness. Some examples of success include outbound customer care, one-stop services, online applications offering company updates and payment advance services which allow hospitalised customers to claim medical expenses advance payments to cover the costs of treatment without going through a formal claim process.

Moreover, a customer complaint management service is in place to provide attentive and courteous assistance. As a member of Cathay Financial Holdings, Cathay Life enjoys the advantage of shared resources from other member companies which are made available to its policyholders in a variety of benefits including 24-hour free towing services and complimentary triennial physical examinations for VIP customers.

The wide array of benefits and services offered by Cathay Life has impressed not only the consumers in Taiwan but also those in China and Vietnam, a fact that positively fueled the company’s ambition for further expansion.

Risk management at Cathay Life
Constant vigilance as well as flexibility and adaptability are all encompassed in Cathay Life’s strong suits. The ability to control major risk exposures earned the company a score of Strong in Enterprise Risk Management by Standard & Poor’s in 2008.

Consequently, Cathay Life has remained a profitable business during the global recession rather than exiting the market as many of its competitors did.

“The unsettled economic environment brought a company’s financial stability into focus like never before, especially with regard to certain key factors – net worth, liquidity, and the quality of investment portfolios. In 2009, we bolstered our net worth and liquidity positions, both to enhance our ability to pursue business opportunities and to provide ourselves with a buffer against adverse conditions. Our net worth rose from NT$53.9bn to NT$113.1bn and we overweighed cash position from 11 percent to 16 percent of our invested assets during the year.”

Future prospects
It is the future of Cathay Life that holds much intrigue. The emphasis on a close partnership with the customers is most admirable and the company’s commitment in this aspect is evident.

“In adherence to our promise of ‘Customer First in Pursuit of Excellence’, Cathay Life will continue to safeguard customer rights by employing well-educated and dedicated professionals and providing excellent agent training and by upholding marketing ethics.

“We aim to satisfy customer needs by providing a regular and active telephone consulting service as well as various customer-friendly services.

“We intend to increase marketing and service efficiency by integrating resources under Cathay Financial Holdings and by employing the advantage of CRM (customer relationship management) to find our target customers. Also, we will continue to develop business in China and Vietnam while monitoring trends and opportunities in other overseas markets and aiming to become the best insurance company in Greater China and emerging Asia.”

Ultimately, Cathay Life wishes to expand upon their proven business plan and offer a variety of products and services to be enjoyed by consumers throughout Taiwan, China, Vietnam and perhaps one day further afield, a vision driven by an emphasis on building customer relations.

“Based on the long-cherished principle of dependability, Cathay Life Insurance will continue to offer quality services with professionalism and innovation, part of our existing business philosophy. Moreover, we aim to build lifetime partnerships with our customers and remain committed to continuously outperforming ourselves towards becoming the best financial institution in Greater China and emerging Asia.”

Brazil markets continue surge

Posted on October 20, 2010 by

Foreign companies have increased their interest in the Brazilian market and domestic companies have finally found room to expand their activities overseas and become multinationals. Machado Associados started its activities in 1990, initially as a tax boutique. Its tax expertise came from the wide experience of its founders who had previously worked as partners in charge of tax departments of large international audit and consulting firms. As the years passed and due to the clients’ needs, the firm started to develop the corporate and M&A areas, which currently comprise almost one-third of the personnel.

Over two decades of activities, the team has grown and the practice areas have diversified. The firm currently has 110 highly-qualified professionals, half of whom specialise in all areas of tax law, including direct and indirect taxes, litigation, international matters and transfer pricing. The firm provides legal services in all major areas of business law including the areas mentioned above, as well as foreign investment, labour, anti-trust and regulatory. The main office is based in São Paulo with branches in Brasília, Rio de Janeiro and Chicago. We also have corresponding offices in all the other Brazilian states.

International approach
2010 has been a great year for the Brazilian economy. Differently from other markets, the Brazilian market has experienced a significant growth and M&A transactions have finally reborn. Owing to this movement, foreign investments have increased in Brazil.

There is also a positive picture in outgoing investments. Over the last few years, several Brazilian companies have prepared themselves to face the international markets and the globalisation phenomenon. Aiming at following this internationalisation process, for the last 10 years the firm has deeply invested in the development of an international (tax and corporate) area and a closer relationship with top ranked tax firms abroad (in Latin America, Europe, Asia and the US).

In the US, the firm is represented by Miguel Valdés, an expert in US tax law, with emphasis on international tax restructuring, mainly as regards Latin American countries. Miguel has been the resident partner of the Chicago office since 2002. Before joining the firm, he was the partner in charge of the Latin America Business Centre of Ernst & Young (Chicago, US), partner of Mayer, Brown & Platt (now Mayer Brown LLP) and partner of Coopers & Lybrand (Chicago, US). In 2002, he was appointed by the International Tax Review as one of the main US tax experts in Latin America in their list of the world’s leading tax advisers.

Miguel is also the president of the Latin America Tax and Legal Network (Lataxnet), an international network of top ranked firms specialising in legal and tax matters in Latin America and the Caribbean. Based on a “best-friend” relationship, Lataxnet affords us the opportunity of working on and coordinating projects in several areas, simultaneously, in every country of Latin America.

Erika Tukiama is one of the partners in charge of the international tax area. She is based in São Paulo, graduated in 2000 from the Law School of São Paulo University (USP), and received her postgraduate dedgree in 2002 from the Brazilian Institute of Studies in Tax Law (IBET). Erika is an active member of international associations (such as the International Bar Association, the International Fiscal Association and the Fiscal Committee of Union Internationale des Avocats) and has been part of the team and assisting clients, mainly Brazilian companies expanding their activities abroad, for the last seven years.

Cross-border transactions
Unfortunately, the firm was not the only one who bet on the booming of the Brazilian market and the growth of cross-border transactions involving Brazil. In this respect, the Brazilian government and the Federal Revenue Service (RFB) have also done their homework by enacting, in the last years, several tax rules and regulations governing tax matters and giving rise to a huge bureaucracy, high tax burdens and tax contingencies.

Brazilian tax rules, when compared with other tax systems, are indeed very broad, unclear and burdensome and RFB’s position on international tax matters has become increasingly controversial.

As with profits earned overseas, Brazil imposes taxation on any profits recorded by a controlled or affiliated company residing abroad. Taxes must be paid by the Brazilian parent company on December 31 of each year, irrespective of actual distribution, nature of income (active or passive) or country of residence of the foreign subsidiary (tax haven or not).

As shown above, Brazilian rules aim at reaching all profits earned abroad on an accrual basis and, therefore, do not follow the scope of traditional CFC (controlled foreign companies) rules, whose main purpose is to avoid tax evasion and abusive international structures.

Tax assessments against Brazilian companies with investments abroad have become more frequent and tax authorities have now started to challenge international structures, incorrect use of tax treaties and unsatisfactory documentation for purposes of tax reliefs in Brazil.

Against an international trend, Brazil has also enlarged its tax haven definition and introduced a new concept of privileged tax regime. Grounded on recent laws, the RFB has published new black and grey lists.

According to the new black list, 65 jurisdictions (as opposed to the 53 stated in the former list) were classified by the RFB as tax havens, understood to be those countries or locations: (i) that do not tax income or tax it at rates lower than 20 percent, and/or (ii) whose legislation does not allow access to information regarding the shareholding structure of legal entities or their ownership. Among the changes introduced, there was the inclusion of Switzerland. Malta and the holding companies governed by the Luxembourg Law of 1929 were excluded from the tax havens list and listed as privileged tax regimes.

According to the new grey list, legislations of nine jurisdictions were included in the privileged tax regimes list, among which are Uruguay, as regards the SAFIs (“sociedad anónima financiera de inversion”); the US, as regards certain state LLCs (limited liability companies); Spain, as regards the ETVEs (“entidad de tenencia de valores extranjeros”); and the Netherlands, Denmark and Luxembourg, as regards legal entities incorporated as “holding companies” (in relation to the Netherlands and Denmark, only those that do not perform substantial economic activities are to be considered privileged tax regimes).

In our view, Brazil’s position is not in accordance with the measures that have been adopted by other world countries, which have been increasingly restricting their black lists.

The Brazilian new lists have already started to cause negative impacts abroad. Due to that, the RFB allowed governments from the listed countries to file appeals for the revision of their classification within such lists. Based on this permission, some appeals have already been presented and RFB’s acts have been issued in order to temporarily grant suspensive effects to the inclusion of the Netherlands in the list of privileged tax regimes and of Switzerland in the tax havens list.

Following a global trend, thin capitalisation rules were introduced in Brazil and apply to payments of interest: (i) to related foreign individuals or legal entities; (ii) to individuals or companies domiciled in tax havens; (iii) arising from transactions carried out under privileged tax regimes; and (iv) arising from transactions under the intervention of foreign related parties, residents in tax havens or parties subject to privileged tax regimes.

Interest paid to foreign related parties, not incorporated in tax havens or under privileged tax regimes, shall be tax deductible if:
– The debt amount with the foreign related party does not exceed two times the net worth value of the related party’s investment in the Brazilian company (individual limit). In case no shareholding relationship is present, this individual limit shall correspond to twice the net worth of the Brazilian company; and
– The sum of all debts with foreign related parties does not exceed two times the sum of all net worth values of related parties’ investments in the Brazilian company (collective limit).

Interest paid to beneficiaries resident in tax havens or arising from transactions under privileged tax regimes shall be tax deductible if the sum of debts with such foreign entities does not exceed 30 percent of the net worth of the Brazilian company.

Several issues have been left unclear by law, such as the lack of guidance to: (i) calculate the non-deductible portion of interest and (ii) apply the thin cap rules in view of other interest deductibility rules currently in force in Brazil.

Difficulties as those seen above have indeed increased the need for careful analysis of Brazilian rules, as well as a previous evaluation of the risks involved.

Miguel Valdés and Erika Tukiama are partners of the international tax area of Machado Associados

For more information T: +55 11 3819 4855; E: mvaldes@machadoassociados.com.br; www.machadoassociados.com.br

What’s your number?

Posted on October 20, 2010 by

Andrés Castro, CEO, ING Chile

ING Chile is part of ING Group, the Dutch-based global financial group. ING started operations in Chile in 1997. It has two million customers – nearly 12 percent of the country’s population as a whole, and in Latin America the group is the second largest asset manager for retirement and savings.

The firm has three lines of business – insurance, pensions and mutual funds – and AUM of $30bn.

ING Seguros de Vida S.A. (ING VIDA) is a leading life insurance company providing services to individual and corporate entities. Today, total brand awareness of ING VIDA is 76 percent, ahead of any competitors in the Chilean market.

In 2009 the company launched a new strategy to become the country’s leading provider of savings products and protection for retirement. The Wealth Management Strategy (WMS) has been rolled out across the region with the intention of helping customers to plan more efficiently for their retirement. This is carried out through a combination of compulsory savings, equating to 10 percent of the client’s monthly salary and voluntary savings products. For ING VIDA, the WMS is a commercial strategy, but one that represents a move away from a product-oriented approach to a more customer-oriented one.

Two important elements of this new emphasis on customer focus are personalisation and communication. The company operates modern call centres, which clients can contact with any queries or requests its clients may have, and its extensive branch network offers face-to-face support. It is through these branches that high income and high net worth customers can gain access to a dedicated team of managers who will support them while they find financial solutions that suit them and their particular needs. They are also provided with information on market conditions every week and any recommendations on updating their portfolio are provided accordingly.

As part of the marketing strategy for WMS, ING VIDA developed the “TU NUMERO” campaign, which initially targeted middle and high-income individuals. Meaning ‘your number’, the idea behind the campaign is to get existing and potential customers thinking about their future financial security after the end of their working life. The concept intends to simplify a complex issue like retirement savings by providing a single target value for the client or would-be client to aim towards in their saving. This has made topics that people can find confusing easy to understand and encourages people to want to learn more and ask for advice in moving forward.

The programme used various channels of promotion, including mass advertising in print and broadcast media, direct marketing and below the line promotion. On top of this use of traditional marketing avenues, the company harnessed the power of online interaction, developing a dedicated website where members of the public could answer the question posed in the advertising campaigns: “What is your number?” Through this website, people were given a personalised experience that resulted in them discovering what their ‘number’ is. The campaign was very successful; the site had over 280,000 hits and the firm received 24,000 formal contact requests.

TU NUMERO entered its second phase this year with a simplified message and a broader reach. This new stage of the campaign conveyed the message that everyone can reach their TU NUMERO goal through the company. Instead of the more enigmatic “What’s your number?”, marketing and advertising materials now posed the question “How will you read your number?” and answered “Arrange your savings plan with ING”. The results have been 81 percent on campaign recognition and 65 percent on message relevance.

The campaign has helped ING VIDA overcome many of the challenges faced in implementing the WMS plan, the greatest of which was introducing the concept of voluntary savings to the Chilean Market. While mandatory savings schemes have been highly successful and widely accepted, voluntary schemes compete with the customer’s desire for immediate consumption. This was combined with cultural influences in the country, such as a low percentage of the population understanding the importance of long-term savings. At its core, TU NUMERO aims to show that in order to have a better retirement one needs to put aside more than just the mandatory contribution. Voluntary savings have also been made more appealing, particularly to high-earners, by highlighting the tax benefits they bring. This message has been revolutionary; this initiative is the first time that any finance company in Chile has focused on telling people the amount of money they need to save in order to have a defined pension upon retirement. This uniqueness has been a large part of the campaign’s success.

However, there were further challenges ING VIDA had to face. There are many different customer expectations that the firm has to deal with and as such the need for flexibility and personalisation has been vital. The key to making this work is adaptability and working on an individual basis. In order to achieve this, the organisation undertook a client segmentation exercise, in order to determine who would benefit most from particular services and products. To help with this, the company increased the range of insurance products it had on offer, both in traditional areas such as health, life, credit life and unit-linked items, as well as investment alternatives such as equity and fixed income funds. It is not only access to its own products that ING VIDA is offering; customers also have the opportunity to take advantage of a selection of top funds and investments from market competitors, which it operates through an open architecture scheme.

As a final aid to implementing this strategy most effectively, the business has made innovative technological solutions available to its clients. Online tools such as GPS let clients know when an investment they are looking to make is above the normal risk profile of their portfolio – a function that has been particularly useful in light of the recent financial troubles of the global economy – and will also be made aware of any unexpected swings in the market. Additionally, the Customer Management software improves client relations, ensuring that customer relations operates on a one face, one click and one call basis.

When considering WMS and TU NUMERO in the context of the wider local market, it is clear to see that ING VIDA is in a good position. In general terms, the Latin American retirement savings market has shown considerable economic development in recent years and has fared very well during the global economic downturn. The largest economies in the region, Brazil and Mexico, are particularly strong and increasingly important at a global level. However the smaller countries in the area such as Colombia, Peru and Chile, have also become interesting markets when it comes to savings and investments. Migration from pay-as-you-go schemes to private capital systems in the sector have brought considerable benefits to contributors who understand that the responsibility for retirement savings lay with them. But this situation has further strengthened the need for complete professional financial advice from companies like ING VIDA, which have the knowledge and experience to help their customers most fully.

Looking to the future, ING VIDA plans to build on the success of the WMS drive so far. Its goal is to increase its client base, but to do so in the most efficient and effective way possible. In order to achieve this, the organisation is exploring new ways in which it can reach a larger number of customers in one go. One potential option that is currently being looked into includes corporate health and life products that can form part of a company benefits package.

Through this same channel, ING VIDA will then also be able to present itself to the employees as a leading provider of savings solutions as well.

What lies at the centre of ING VIDA’s success in the Chilean retirement savings market is a commitment to providing innovative services and products in a personalised and targeted way. It does not take time to sit back and congratulate itself on its successes but instead looks constantly for ways to build upon them. In just over 10 years the company and its products have grown to become some of the most recognised in the country and it has succeeded in making the population more aware of the need to plan for their future. It has also managed to cast its net wide, attracting both middle-income customers and high net worth individuals without detriment to the service of either and while understanding the differing needs of both. By pursuing this business model into the future and helping to change the financial culture in Chile, ING VIDA has ensured its relevance and leadership in the market for many more decades to come.

The best derivative for trading?

Posted on October 20, 2010 by

Various advances over the last 10 years have served to level the financial markets playing field for private investors around the world. The initial driver behind this change was technology – as computers became another household appliance and high-speed internet connections became the norm, the delivery of information such as breaking news, market prices and orders to buy or sell became easier than ever.

It is not surprising then that contracts for difference (CFDs) have enjoyed such strong growth in popularity over the same period. Previously they had been almost exclusively the preserve of major financial institutions, but this technological leap forward opened them up to a whole new audience.

Another reason for the CFD boom is transparency. The financial industry is renowned for its love of jargon, but the concept behind a CFD is straightforward – it mimics the movement of an underlying market. So if for example, the price of Amazon shares rises from $125 to $130 – the CFD will follow suit. If you would like to take a position using CFDs, equivalent to owning 100 shares in Amazon, then you simply buy 100 CFDs.

The gyrations in various markets over recent years have also helped to boost the appeal of CFDs. In many countries it has historically been difficult for clients to “short-sell” markets – particularly individual equities. With CFDs it is just as easy to sell as it is to buy, so if you believe a particular share is likely to fall over the next couple of months, or even that the price of gold will drop over the next few hours, you are able to position yourself to profit if the market drops.

A further attraction of CFDs is the wide range of available markets. There have always been ways for private investors to trade – individual shares, foreign exchange, commodities, bonds, stock indices – but with CFDs this can all be done from one account. And, unlike with the futures markets, when using CFDs the size of the exposure can often be tailored. For example, if an IG Markets client wants to trade stock indices such as the Dow Jones, or forex pairs such as EUR/USD, there are “mini” contracts available allowing the risk to be kept to a level with which the client feels comfortable.

On the subject of risk control, as CFDs are margined products it is important to understand that they may not be suitable for everybody. However, there are plenty of tools available to ensure that risk can be kept to a reasonable level.

Stop-losses are a widely-accepted way of ensuring that a trade is automatically closed at a pre-determined level. CFD providers were certainly well ahead of traditional brokers in offering these as standard on online trading platforms. With IG Markets, there is also another type of risk control that can put an absolute limit on risk from the moment the trade is placed. That is the guaranteed stop loss. With a guaranteed stop, even if the market is moving very quickly and leaving “gaps” – jumping from one level to another, missing out a range of prices in-between – the trade will always be closed out at the guaranteed stop level. This offers a level of risk control not easily available in the underlying market, meaning clients need not worry about a larger-than-expected loss due to a freak event or unexpected news.

On top of all of this are the trading platforms and tools available to CFD traders. Once again, CFD companies have led the way here, with a massive range of analytical features and tools such as advanced charting software, pattern recognition programmes, SMS alerts and mobile phone trading applications. Some platforms, including IG Markets’ PureDeal, offer Direct Market Access (DMA), allowing clients to interact with the underlying market. This has a range of advantages, including enabling clients to place trades directly into the SETS order book at the London Stock Exchange.

CFDs are one of the best ways of trading a wide range of markets if you have a short- to medium-term view on direction. While all of this can seem a little daunting at first glance, there is a whole host of resources available to guide you through. At IG Markets there is even a demo account facility, which allows users to practise trading and try out the platform without risking any real money. IG Markets runs regular online seminars and its website contains hours of free educational videos that explain CFDs and trading strategies in further depth.

David Jones is Chief Market Strategist at IG Markets

Germany rings changes to rental income

Posted on October 20, 2010 by

The 2009 Annual Tax Act has changed the tax treatment of non-resident corporations generating income from renting out immovable properties in Germany (sec. 49 para. 1 no. 2f aa German Income Tax Act (ITA)). According to the new provision, ongoing rental income is qualified as German-sourced business income (instead of so called income from rent and lease) if it is generated by a foreign corporation. The new rule came into effect on January 1, 2009.

Before this recent change in law, only gains resulting from the sale of German immovable property by a foreign corporation were qualified as business income.

As the annual statements and tax returns for the fiscal year 2009 have to be filed by the end of this year, the described changes have to be applied now. In the following, possible advantages of the new provision shall be described; but it must be pointed out that there are many areas of uncertainty on how to put those changes into practice in day to day accounting. Due to the fact that the new provision has only been in force since 1 January 2009 there have been no court rulings or fiscal decrees on this issue – yet. The issues outlined in the following therefore are based on the prevailing view in literature and the (non-binding) information given by a member of the Federal Ministry of Finance.

Consequences
(i) Income determination
As a result of the qualification of rental income as business income, a different income determination method has to be applied. For business income, there are two different methods to determine taxable income: The balance sheet method and the cash flow method. Sec. 140 and 141 of the General Tax Code (GTC) specify which companies are obliged to use the balance sheet method. The prevailing view in literature is that foreign companies are only obliged to use the balance sheet method if they have a permanent establishment or a permanent representative in Germany. Since most foreign corporations renting out immovable property in Germany neither have a permanent establishment nor a permanent representative, they – according to this view – can choose between the balance sheet method and the cash flow method. However, the view of the Federal Ministry of Finance on this issue seems to be different. It is assumed that Sec. 140 GTC does apply and therefore the application of the balance sheet method is compulsory.

Even though the member of the Federal Ministry of Finance could not give us certainty on the view of the Ministry – which is currently trying to coordinate the finance ministries of the federal states and to prepare a decree on this issue – his view should be taken as a good indication on the views the Ministry may hold. To be on the safe side one should therefore consider using the balance sheet method which – as will be shown below – will in the most cases be advantageous anyway.

(ii) Valuation and tax treatment of the building

a) Valuation/depreciation base
The transformation from rental income to business income results for tax purposes in the transfer of the immovable property from the private to the business sphere which would usually be treated as a capital contribution at fair market value. However, the prevailing view on this issue is that the immovable property already entered the business sphere when the foreign corporation bought the rental object, since the immovable property was always – even before the change in law – considered to be a business asset for taxation purposes at the time of its sale. Therefore, the book value of the immovable property does not change due to the change in the qualification of the rental income as business income. Hidden reserves do not have to be disclosed.

According to the prevailing view, the depreciation base changes. The new depreciation base is the historical cost of the immovable property less the depreciation deducted up to 2009.

Example
A building was purchased at a purchase price of €1,000,000.00
(not including land) in November 2006; depreciation rate 2 percent:

Acquisition costs 1,000,000.00
Depreciation 2006 3,333.33
Depreciation 2007 20,000.00
Depreciation 2008 20,000.00

Book value on 1 Jan 2009 956,666.67

Deprecation from 1 January 2009 on will be accomplished from a depreciation base amounting to €956,666.67.

b) Depreciation rate
In case the immovable property is rented out for private residential use only, the depreciation rate does not change and depreciation continues at a rate of two percent per year, but from the new depreciation base.

In case the immovable property is rented out for other purposes than private residential use, the depreciation is now conducted at a rate of three percent per year, again from the new depreciation base. The reason for the increase in the depreciation rate is the change in the qualification of the generated income.

Transfer of hidden reserves
Under certain circumstances German tax law allows tax payers using the balance sheet method to transfer hidden reserves from one asset (e.g. land and buildings) that has been sold, to a similar new asset the taxpayer might acquire in the future. This avoids the realisation of hidden reserves from a sale and therewith a tax burden on capital gains.

However, sec. 6b and 6c ITA state that this possibility only exists for assets that are part of a German permanent establishment. However, the prevailing view in literature is that this provision does not comply with European law, since it discriminates foreign companies in comparison to domestic ones. In case a foreign corporation owning immovable property in Germany does consider selling the real estate at some point in time and to re-invest the cash in a new project in Germany it may be possible to do so free of tax. As long as this issue has not been ruled over by a court ruling or fiscal decree, we would suggest filing for a binding ruling at the competent tax office before such sale and re-investment measure.

Write-down to fair value
If taxable income is determined with the balance sheet method, assets can be written down to their fair value, if the asset’s fair value is expected to remain below the book value. If in the future and against the prognoses at the time of the write-down, the value of the asset increases again, the asset has to be revaluated up to its new fair value, as long as the new fair value is below the historical cost less accumulated depreciation. However, there is a minor view in literature which denies the application of the write-down.

Trade tax
There are no implications for German trade tax. The qualification of the rental income as German-sourced business income does not trigger trade tax. As previously, trade tax only applies for profits derived through a German permanent establishment. In general immovable property in Germany does not constitute a permanent establishment in the sense of the German Trade Tax Act.

Interest barrier
There is no consensus on the issue whether the interest barrier applies for income generated by a foreign corporation in Germany that does not undertake its business activities through a permanent establishment. In case a concerned foreign corporation’s interest burden per year does not exceed the threshold of €3,000,000.00, the interest barrier is not applicable anyway.

Conclusion
As a result it can be said that foreign companies generating rental income in Germany will have to use the balance sheet method for the determination of its taxable income, once this is demanded by the tax authorities. Changing the income determination method from the currently used cash flow method to the balance sheet method straight away, i.e. for the year 2009, may be advantageous for the following reasons:

– The balance sheet method results in an advantage with regard to liabilities, deferred income, accruals (e.g. for management fees, interest) and provisions exceeding receivables and deferred expenses, since only when the balance sheet method is applied, the former can be deducted from taxable income.

– Write-downs on the fair value can only be deducted from taxable income if the balance sheet method is applied.

– Should the change of the income determination method result in a loss for the fiscal year 2009, this loss can be carried forward and set off with future profits.

– In many cases the figures determined through the cash flow method for German tax purposes have to be coordinated with the consolidated accounts of a group. This is usually very time-consuming. After switching to the balance sheet method, the figures can simply be copied into the consolidated accounts. This is easier, quicker and therefore cheaper even though the change in the income determination method requires a transitional calculation, which may trigger additional costs. Due to the savings and advantages described above those additional costs should easily be balanced.

Hemmelrath & Partner/Marccus Partners, is a professional partnership of lawyers and tax advisors, offering tailored solutions to entrepreneurs and decision makers, with cross-border investments as their core area of practice.

Uruguay economy braces for growth

Posted on October 20, 2010 by

Besides its long-standing political and juridical stability, the richness of its natural resources and the high social and educational level of its inhabitants, a sustained process of economic growth experienced in recent years has turned Uruguay into the “jewel of the region”.

The Oriental Republic of Uruguay, a small country located in the south east coast of South America, has stirred up the interest and attention of the international community, due to its socio-economic, political and geographic characteristics that have made of it one of the most stable, reliable and safe economies in the Americas.

Strategically located between Argentina and Brazil, Uruguay has the entrance key to the Mercosur − the biggest market in the region with more than 250 million consumers − and a growing gross domestic product.

In recent years, besides its political stability, democratic tradition and juridical reliability, Uruguay has experienced an important and sustained process of economic growth at a faster rate than the Latin American average. Between 2005 and 2008, GDP increased at a rate of 7.5 percent p.a., while in 2009 the increase reached three percent. Thus, Uruguay has become one of the few countries that managed to maintain its expansion in spite of the recessive international scenario.

This successful performance has been the result of a qualified and responsible economic management that was able to implement a model of sustainable, equitable, and balanced economic growth, based on solid pillars comprising: prudent macroeconomic policy, search of balance in public accounts, responsible management of public debt, a growing degree of opening to the world, and a healthy banking system.

Macroeconomic policy
The cautious management of the fiscal and monetary policies set a favourable scenario for the planning and development of private investment, an essential driving force for sustainable growth.

The monetary policy kept under control the inflation in spite of the great increase in the international price of commodities (food and energy). As of June 2010, annual inflation reached 6.2 percent, within the target range set by Government. On the other hand, the existence of a flexible exchange rate system provided the economy with a greater adaptation capacity when faced with external ups and downs.

Balance in public accounts
Since the respect for fiscal balance was considered a key factor to assure the sustainability of the economic model, the average fiscal deficit of the last five years was around one percent.

The excess capacity of public accounts allowed the adoption of a set of anti-cyclical measures as from the end of 2008 to face the negative impacts of global crisis and the increase in energy costs as a consequence of the drought that hit the country, while maintaining the fiscal deficit at reasonable levels. However, the fiscal balance is still a priority condition for the economic management of the country, and this has been reflected in 2010 in the reduction of the fiscal deficit.

Public debt management
The competence of public debt management and planning enabled to reduce the vulnerability of national economy, decreasing its external exposure degree through a strong reduction of the debt burden on GDP and the construction of a clear maturity horizon for the next years. As a result, the price of Government Securities has experienced an unprecedented increase, reaching historical highs. Thus, country risk fell down 200 basis points.

Furthermore, Uruguay shows a sustainable increase in international reserves, achieving a record level by mid 2010 ($7.500m, ie 22 percent of GDP).

Opening degree
The country has developed a model of economy open to the world, thus enabling the strong economic growth to be accompanied by a greater opening degree (60 percent of GDP in the last five years), a growing diversification of destinations, and a remarkable increase in the exports of services, mainly of software and tourism.

From the beginning of 2010 up to this moment, exports from Uruguay have shown a strong and sustained dynamism, reaching averages not only above 2009 amounts but also above 2008 historical highs.

Banking system
The Uruguayan banking system has remained sound and liquid, away from the toxic assets and risky practices that originated the ups and downs in international financial markets during 2009.

Composed of a public bank (Banco República) and 13 first rate international banks, the Uruguayan banking system has remained healthy, needing no support from the State. This is remarkable within a worldwide scenario in which governments had to bail out their financial systems through multimillionaire capital injections.

Concerning solvency, the prudential regulations applied in recent years provided for requirements even more demanding than those recommended by Basel. As a consequence of this, the capital adequacy (Tier 1) of the system was about 17.5 percent through these last years.

As opposed to what has occurred in other banking systems, the delinquency has remained extremely low (1.2 percent), due to the banks’ high quality credit portfolio.

The excellent economic results obtained by Uruguay in recent years, which received the recognition of many international leaders, have been supported by a socio-political climate that has allowed Uruguay to be internationally well-known.

Stable political and juridical scenario
Due to the stability, soundness and transparency of its political structure, Uruguay has earned, on several occasions, international recognition. The Economist places Uruguay at the top of its democracy ranking, being the only country in South America with full democracy. Transparencia Internacional ranks it together with Chile as the countries with the lowest level of corruption in the region.

Its reliable juridical framework – with clear and equitable game rules for domestic and foreign investors – has made the country an excellent destination for investments.

The existing investment regime includes a series of tax exemptions and benefits, and also the free repatriation of capitals and free access to the exchange market. This is facilitated by a banking system that, unlike many others, deals in national and foreign currency.

As a result, the volume of FDI has multiplied in recent years until achieving in 2008 a record amount of more than $1.800m (six percent of GDP). During 2009, the FDI flow felt the impact of the global crisis, although above the average of the last five years, showing an upturn in 2010. The stability, strength and perspectives of the Uruguayan economy determined an increase in the quantity and amounts of projects submitted under the law for investment
promotion.

The total investment has registered a sustained increase of its share in GDP, and it is foreseen that it will continue growing in 2010 and 2011.

In short, the economic growth model adopted by Uruguay in 2005 has offered the country the possibility to successfully overcome the international crisis.

The financial stability together with the favourable natural, cultural, social and political conditions, have turned the country into an excellent destination for investment.

The recent report on economic climate in Latin America, made by Fundación Getulio Vargas, placed Uruguay within the countries with the best climate and possibilities of improvement in the region.

The Cepal has foreseen a growth rate of the level of activity for 2010 of seven percent, thus ranking Uruguay as the second Latin American country of greater dynamism after Brazil.

During the first quarter of 2010, the GDP increased by 8.9 percent as from the same quarter of 2009, with a strong expansion of all the productive sectors, mainly the external sector, with an increase in consumer and private investment of eight percent and 13 percent, respectively.

The boost in internal demand, the recovery of the world economy and external demand, the good international prices of main exports, the return of investment flows and the solid economic basis of the country, allow us to ensure that Uruguay will continue showing an ongoing and sustainable growth in the years to come.

For further info Tel: (598 2) 1896 2710 Email: secretariapesidencia@brou.com.uy; www.bancorepublica.com.uy

Ecuadorian bankers target wider LatAm

Posted on October 20, 2010 by

When the global financial crisis struck in September 2008, Ecuador’s banks barely flinched. Sure, the global crisis hit the South American country hard, shrinking markets for Ecuadorean exports, hammering the price of the OPEC member’s oil, and spilling tens of thousands of Ecuadorean overseas workers into the streets, undercutting remittances sent home.

Wiser after a wrenching systemic crisis in 1998-2000 that led two dozen banks into bankruptcy and even made the country drop its currency in favour of the dollar, the banking system continued liquid. Ecuador’s isolation from foreign markets limited the contagion: exchanges weren’t exposed to sophisticated derivative products and banks and corporations weren’t exposed to instruments that turned toxic.

Foreign banks meanwhile have largely turned a blind eye to oil-rich Ecuador, with Lloyds ending a near-century of its own presence in August 2010, making it the last major foreign bank to close shop. But this exodus has been less a consequence of Ecuador’s tumultuous recent political history than a retrenching of the Dutch, US and British banks in the wake of successive South American crises from the late 1990s to early this century and the subsequent global crisis.

No-one knows the opportunities of the attractive playing field they’ve left behind better than Quito’s most prestigious investment bank: Analytica. Its in-depth local knowledge of Ecuador’s complexities has been crucial in finding numerous sub-radar opportunities, all the while drawing on its home-grown management’s international expertise and network. And its success has been clear almost from its start in 1996: none of its clients lost money in the Ecuadorean crisis.

Bankers Ramiro Crespo and Eduardo Checa have formed Analytica’s double leadership since 2005. Mr Crespo is Analytica’s general director and main partner; a former Edward S. Mason fellow at Harvard University’s Kennedy School of Government, with business and economics degrees from Georgetown and Maryland Universities. He previously worked at Citibank and National Westminster in New York. He has been on the board of directors of Quito’s stock exchange, Ecuador’s central securities deposit company, and the country’s mining chamber. Mr Crespo has been quoted by numerous local and international media companies including The Economist, the Wall Street Journal, Reuters, Dow Jones Newswires and CNN. He has also published articles in local magazines Vistazo and Vanguardia and has expertise in the aviation industry. Before joining Analytica, Mr Checa, who also has a US business degree from the University of Wisconsin-Stout, was ING Group’s country manager for Ecuador from 2000 to 2003 after being Vice President and Head of Corporate Finance. He was also Second Vice President at Chase Manhattan and has held executive positions at several local banks. Mr Checa also advised the conservative Durán Ballén government and now manages Analytica’s business activities, including mergers and acquisitions, its brokerage, fund management, and research. The combination of local and international experience brings both the proper networks and depth of knowledge for market leadership helping to link the local with the global market. “We’re already looking at the whole of Latin America and creating a regional platform,” says Mr Checa. “We’re working in trading and swaps of debt, private equity and M&A, obviously with international partners.”

The privately-held boutique investment bank with 15 full-time staff members has thus made its mark in advising numerous important local transactions. Emerging from Ecuador’s InvestBan, it weathered the turn-of-the century crisis, in fact becoming one of the leading institutions in Ecuador’s unusual back-to-private sector drive. Unlike Chile, Mexico or Argentina, neo-liberalism never really took hold there. But in 1998-2000, bankrupt financial holdings had to pass their assets to a government deposit-insurance authority, AGD, amid the massive bailout. AGD in its decade of existence slowly re-privatised companies, including under the present administration, on several occasions enlisting support from the bank. Among other fallout from the crisis, Analytica crucially guided foundations which successfully participated in United States Court of Appeals for the Second Circuit interpleading proceedings over sovereign debt swaps. This is one of the rare cases worldwide where plaintiffs won a case against a sovereign lender.

Among important deals, Analytica sold a 45 percent share in Ecuador Bottling Company, the exclusive Coca Cola bottler, for local groups Emprogroup S.A. and Nobis. “We strengthened the position of the minority shareholder in the sale,” says Mr Crespo. Another transaction linked to global heavyweights included negotiating Alliance Capital’s debenture restructuring in mobile phone carrier Porta, now by far Ecuador’s biggest company in its industry, forcing its sale to Mexican magnate Carlos Slim’s América Móvil.

Beyond the local market, the global financial crisis has actually helped to accelerate trading and unleashed potential as clients have restructured portfolios. “The international market has given us a lot of opportunity as there’s a lot of debt that has a market to be reallocated, swapped,” says Mr Checa. Investors with appetite for risk are now looking at red-hot emerging markets not just in Latin America but also Asia. “We structure debt and participate with major international investment banks in the development of debt issuance,” Mr Checa adds. On this backdrop, Ecuador is one of the untold stories, with numerous undervalued assets.

Local companies meanwhile are being aided in structuring their debt optimally and acquiring overseas credit. Dollarisation has helped bring much-needed economic stability to Ecuador, and the oil windfall and remittances sent home have filled public-sector and private pockets with cash. Demand for new cars is so high that Quito, the capital, has introduced restrictions based on licence plate numbers, and cities like Guayaquil and Cuenca are poised to invest heavily in public transit schemes. Retailers continue to expand, with a $100m, 350-store shopping mall – Ecuador’s biggest – that opened early August in low-income southern Quito. Analytica’s early recognition of the area’s potential led it to structure the country’s biggest-ever private real estate project, 8,000-house unit Ciudad Jardín, nearby. “We developed the financial product, sold it to important Spanish real estate developers, and for a time remained as investors in one of the projects with 33 percent,” says Mr Crespo. At the national level, companies like conglomerate Eljuri, grocer La Favorita, and lorry importer Mavesa have grown to establish major local operations – La Favorita dominates both the supermarket segment and the stock markets. Foreign companies are eyeing the growing insurance market. Investors have been snapping up dollar-denominated obligations issued by locally important companies like Pinturas Cóndor or international giants like Nestlé in local exchanges.

In Ecuador, Analytica is uniquely suited to assist small- to mid-sized companies in developing and professionalising their businesses. Many companies here are family-owned or run as family businesses, requiring help in both setting up adequate corporate governance and managing debt. Since 2008, in a programme sponsored by regional multilateral development bank Corporación Andina de Fomento (CAF) and the Inter-American Development Bank, Analytica’s brokerage division Analytica Securities has been designated by the Quito Stock Exchange (BVQ) as the sole securities house in Ecuador qualified to design and implement corporate governance programmes for clients. This is an essential tool in creating value for numerous growing clients. A client carrying out this type of organisational review will have easier access to the financial market. CAF, BVQ and Ecuador’s state-owned Corporación Financiera Nacional, among others, provided seed capital for Fondo País, a trust that invests in shares and other securities of select local startups offering high potential and high return. Mr Checa is a director of the fund.

The pointedly heterodox and socialist approach some governments are pursuing, including that of Ecuador, has slowed gross domestic product growth. Banks have been on the defensive, accosted by government reduction of interest rates, fees and minimum domestic deposit rules – all of these with little impact on Analytica given its specialisation. By sheer luck, the government debt default of 2008 came at a time when hedge funds needed liquidity because of the world credit and financial crunch. The subsequent buyback offer at a 35 percent discount therefore apparently found enough takers to be dubbed successful, but isolated Ecuador from the international capital markets. Administrative blunders led to the country’s blacklisting by world anti-laundering body Financial Action Task Force early in 2010, although the administration has taken important, albeit grudging, steps to correct the situation. With external financing arriving slower than expected for government infrastructure projects, officials have begun to make clearer commitments to welcoming foreign direct investment. Following Ecuador’s maverick bond default, in August 2010 Standard & Poors increased the remaining bond’s credit rating to B- from CCC+ with a stable outlook, citing increased willingness to honour the debt. A somewhat toned-down state of the nation speech by President Rafael Correa, also in August, may reflect greater realism.

If Ecuadorean politicians were to get their act together, they could quickly unshackle growth to match that of the blistering pace of Colombia and Peru over the last few years. Slow macroeconomic growth does show the costs of the ever-boiling cauldron of Ecuadorean politics. One of the most dangerous ideas − and one Mr Crespo outspokenly criticised − was a plan to reduce transparency in central bank accounting. The administration has sought to accelerate growth by directing funds deposited by local banks and the Ecuador’s central bank at very low interest rates overseas into investment projects in the real economy. Unfortunately, its own policies have maintained significant uncertainty, slowing the demand for credit. The plan was to sidestep these concerns and give the central bank’s executive board extraordinary discretion over the use of deposits, including the purchase of private-sector securities. Fortunately, the legislature failed to approve the bill. For now at least, the financial sector looks firm.

Like its name indicates, Analytica’s prize-winning team has from the start produced research that sets it apart from its peers. Analytica distributes the Ecuador Weekly Report offering unparalleled insight into politics and the economy compared with both other banks and major media. Written in lively, succinct English, it is one of the top sources of timely information on the country, drawing its content from frank discussions among prominent local and international minds. Its sources include top Ecuadorean business leadership, but also draw on politicians across the ideological spectrum, the diplomatic corps, scientists, journalists, and the armed forces. Analytica is also sponsoring a university in Quito, Universitas Equatorialis, offering degrees in business administration and − because Ecuador is one of the most biodiverse countries on the planet – environmental engineering, with Fundación Natura, the local chapter of the World Wildlife Fund. Analytica executives are in constant contact with academia, as professors, thesis directors, conference panellists and writers of scientific articles. Mr Crespo is also on the board of the Kapawi Lodge, an internationally famous, pioneering tourism project. Deep in the Ecuadorean Amazon, rainforest warriors from the Achuar people now manage a luxury ecotourism resort, supported by the board.

Mergers and private-equity transactions continue even as, irrespective of political noise, companies are growing up. Across Latin America there are thousands of successful, emerging companies with financial needs the big multinational banks aren’t considering given their still relatively small size. Smaller local banks, meanwhile, mostly lack the expertise to handle what these customers are looking for, even as the companies to date lack some financial sophistication. “A large regional market is being created by companies buying and selling but who aren’t necessarily among the biggest,” says Mr Checa. These clients need a tailor-made experience, which Analytica is providing. Analytica is currently advising a Colombian client planning an acquisition in Peru, he adds. Local business groups have bought assets in Peru and even Venezuela. For companies in trouble, Analytica assists them in landing softly. “We also help companies that are going under find a soft landing for all stakeholders, in a country lacking Chapter 11 and similar rules. We have also pioneered in issuing obligations, providing securitisation and helping in debt conversions and their placements” says Mr Crespo, who has vast expertise in trading foreign bonds. Unusually among investment bankers, Analytica’s partners have successful personal experience in industry and business as entrepreneurs. These ventures include world-class flower exports, beverage and supermarket retail, as well as real estate. Real-world experience is one of the reasons for Analytica’s success.

For more information about the Ecuador Weekly Report Tel: (593-2) 222-6640; www.analytica.com.ec

Autonomy sees upside to 2011 EPS consensus

Posted on October 19, 2010 by

British software firm Autonomy said it was confident there was upside for earnings consensus for 2011, even after organic growth slowed in the third-quarter as some contracts were delayed.

The company, whose software searches and organises unstructured information such as emails, phone conversations, documents and video, reported a 10 percent rise in revenue to $211m, at the top of its own guidance.

Autonomy warned earlier this month, however, that revenue for the full year would be three percent lower than it expected, sending its shares sharply down.

Chief Executive Mike Lynch said that the downgrade was taken on “conservative assumptions” around the timing of deals, and there was no change in fundamental demand for its products.

“We are confident in maintaining our view of the outlook for demand and expect to continue to deliver good EPS growth in 2011, with upside to current market consensus,” he said.

Analysts expect the company to report full-year revenue of about $973m and earnings per share of about $1.24 in 2011, according to the company.

Adjusted pretax profit in the third quarter rose 34 percent $86.3m and adjusted EPS rose 25 percent to 25 cents.

World stocks hit two-year high, led by emerging markets

Posted on October 14, 2010 by

World stocks hit a two year high on Thursday, touching levels not seen since September 2008 just after the collapse of Lehman Brothers.

Emerging market stocks led the way, touching levels not seen since June 2008.

MSCI’s all-country world index, a leading benchmark used by professional investors, was up 0.8 percent in the day at around 319. This was the highest level since Sept. 22, 2008.

The index was up around 0.8 percent on the day, some 85 percent above its financial crisis low in March 2009.

MSCI’s emerging market benchmark was up more than one percent on the day. It has risen 14 percent this year.

Japan questions South Korea G20 leadership over FX

Posted on October 13, 2010 by

Japan has called into question South Korea’s leadership of the Group of 20 forum because of Seoul’s interventions to stem the won’s rise and insisted its own currency action was qualitatively different.

“As chair of the G20, South Korea’s role will be seriously questioned,” Yoshihiko Noda told a parliamentary panel when asked about South Korea’s currency interventions.

Record low interest rates in rich countries have pushed global investors into emerging markets in search of higher yields, driving up their currencies.

In response, several governments have stepped into foreign exchange markets or tried to curb capital inflows, raising fears of a currency “race to the bottom” that may trigger protectionism and hobble global growth.

Japan itself intervened in the currency market in September for the first time in more than six years to try to stem a rise in the yen that threatens its fragile economic recovery.

Noda drew a distinction between that action and more frequent intervention by South Korea and China.

“In South Korea, intervention happens regularly, and in China, the pace of yuan reform has been slow,” Noda said.

“Our message is that we have confirmed at the Group of Seven that emerging market countries with current account surpluses should allow their currencies to be more flexible.”

South Korea did not immediately comment on the remarks.

No consensus
Pressure on China to allow its currency to rise faster is likely to intensify but hopes for a G20 consensus look slim.

German Economy Minister Rainer Bruederle was quoted as saying Beijing should make concessions to avoid foreign exchange tensions turning into a trade war.

“China bears a lot of the responsibility for avoiding an escalation,” Bruederle told Handelsblatt newspaper.

China’s insistence that the yuan’s rise must be gradual is a huge obstacle to the appreciation in Asian exchange rates policymakers say is needed to reduce global imbalances.

It, and other countries, counter that the prospect of the Federal Reserve printing money again will flood the world economy with more liquidity, weaken the dollar and push emerging currencies yet higher.

“It’ll be impossible for the G20 to reach a consensus on currencies. Many emerging economies feel that they are being forced to intervene because of a weak dollar,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp.

“China will not succumb to outside pressure.”

Minutes of the Fed’s last policy meeting showed its policymakers thought easier policy may be needed “before long” to bolster a struggling recovery.

China’s chief G20 currency negotiator Cui Tiankai said Beijing was trying to avoid a currency stand-off but that no specific currency should be on the G20 agenda.

“We are doing our best to avoid that,” Cui, a foreign vice-minister, said on the sidelines of a conference in Seoul. “But it requires efforts of all the G20 members, not China alone.”

US Treasury Secretary Timothy Geithner said he saw no risk of a global currency war but on the need for a stronger yuan, he added: “We just want to make sure it’s happening at a gradual but still significant rate.”

The major world currency not being talked down is the euro, as the European Central Bank ponders a reversal of ultra-loose policy while the Fed is poised to ease further and Japan has already cut rates to zero.

“In the G4 space, the ECB is the only central bank that is talking of an exit policy and that is helping the euro,” said Ankita Dudani, G-10 currency strategist at RBS.

Analysts said Tokyo’s criticism of Seoul stemmed from its worries about competitiveness. The yen is up about 13 percent against the dollar this year, the won only about four percent.

“Japan feels it has been under pressure not to intervene because of G7 rules but people outside seem to be playing by different rules,” said Robert Feldman, chief economist at Morgan Stanley MUFG Securities in Tokyo.

Japanese Prime Minister Naoto Kan urged Seoul and Beijing to act responsibly but acknowledged Tokyo’s delicate position.

“I want South Korea and China to take responsible actions within common rules, though how to say this is difficult because Japan has also intervened,” he told lawmakers.

Japan sold 2.1 trillion yen ($26bn) in September to curb the yen’s strength versus the dollar. South Korea has intervened to the tune of about $13bn since late September but analysts said it has acted more aggressively in relative terms.