Doing business in Asia: A team BVI roundtable discussion – Business BVI

Doing business in Asia: A team BVI roundtable discussion

23/01/2020 by Neil（https://businessbvimagazine.com/author/neil/）

BVI House Asia convened a panel of Team BVI Asia practitioners late spring at its offices in Hong Kong for a roundtable discussion on the regional issues and trends impacting the BVI in 2017 under the theme “Doing Business in Asia.” The panelists discussed trends driving the markets, which jurisdictions hold the most promise, business opportunities afforded by Belt and Road, and forces shaping personal finance in Asia in 2017.

Market Drivers

Q: What are the factors and trends driving the Asian financial services industry today?

Aisling Dwyer : I suppose the important things to look at, at the moment, would include a weakening renminbi, particularly from my perspective on the restructuring and insolvency front, the nonperforming loans coming out of China and the effect of that on the market, the Belt and Road initiative – there is a lot of talk in the industry on how that is going to shape the Asian financial industry going forward, the rise of ASEAN and the amount of trade that can be done out of that, the growth of Singapore as a financial hub for Southeast Asia.

Ellie Crespi : I guess there are two main trends from my perspective in the corporate finance space. One is the defaults coming out of China, and, given that institutions are strengthening their distressed debt teams, what that’s going to mean for opportunities in the restructuring space, and the other is the rise of the Chinese banks, and how different that’s made the corporate finance landscape over the last 18 to 24 months for our traditional client base, Hong Kong banks included, and how they have had to deploy their resources to make money.

Frances Woo : I think more on the macro level, over the past five years we’ve seen a lot of outbound investment by Chinese businesses as well as private organizations, and we anticipate that that’s going to continue. I think you’re going to see China rise more on the political stage, particularly given political events You’ve seen the US ceding its role on the international stage, and also events in the UK and the EU. So, I think that although China historically has been going softly, softly, you’re going to see them rise more prominently and therefore Asia as well, and that’s going to drive the Asian financial services industry from here, in terms of their outbound investments and the use of their clout on the world stage.

Claire Fulton : To Frances’ point, I think that’s right. The economies in the region are at a crossroads, as it were, moving away from what historically were export-driven to more domestic consumption driven economies. China inevitably will be a large factor in that, with the growth of SME (Small Medium Enterprise) businesses and trade, whether internationally or inter-regionally. It will undoubtedly drive financial services, and built into that, a large factor that will form the crux of those growth areas being successful, will be infrastructure. In the financing space, which I focus on, we’re seeing a lot of investment from banks and other investors and financiers in that infrastructure space.

Joanne Collett : Our experience echoes those of some of my colleagues here. We’re looking at things like the currency controls in China, for example, so where is the financing coming from? We’re seeing an increase in Chinese domestic banks really getting out onto the world stage, but the issue is, can they really get their money out of China to do the deals? We’re seeing a lot of domestic investors, so domestic Chinese funds using domestic money, and the potential for those domestic funds looking to be doing US dollar funds offshore. So funds already offshore, but with Chinese managers using those funds is quite interesting. Aisling mentioned Singapore, and we do tend to focus in Hong Kong on China, but we should also focus on Indonesia, Vietnam and other places in the region.

Fiona Chan : One of the biggest factors is China. Chinese policies are having a huge impact on Asian financial services, for instance the Belt and Road policy and the impact on outgoing investments and infrastructure developments in other Asian countries. On capital control, everyone is analysing the effect and the policy, and how it will affect outbound investment and the impact on other non-related industries. The delay in approval from Chinese authorities on an industry they have supposedly banned – there is still a huge impact on how everyone is working. Our experience is that the deal cycles tend to be a lot shorter because banks, companies and SMEs are making sure they get the approval they need before they go into legal documentation. So, our deal cycle tends to be a lot shorter now for that particular reason.

Marianne Rajic : I would have to echo that. It’s a welcome change for me that our deal cycle is significantly shorter, and when we do get the instructions and approvals already in place and a clear plan as to what’s going to be done, that’s very positive for us and for the onshore counsel as well. A couple of other observations that may perhaps be signs of the times: I’m seeing a repatriation of VC (Venture Capital) managers and experience from the US back into China for the purpose of bringing inbound investment into China and developing the venture capital product in China. I think there is a huge demand for that. Everyone is looking for the next Alibaba. There is a lot of money being put into that. Another sign of the times is that China is focusing on green energy now. There is a lot of outbound investment into green energy projects, and listings of green energy projects on the US market, which seems to be the complete opposite of the intention of the recent US elections. I think the Chinese are really good at seeing an opportunity in the market and taking advantage of that. Singapore does play a big part in the rest of the Asian market. But China is such a huge powerhouse, and from the perspective of the BVI, if you’re going to be focusing on something, that’s a focus in the region.

Q: I would like to drill down on the excellent topics you have brought up. Ellie, as Marianne was just saying, how does the BVI figure into our thinking as we answer these questions. You talked about banking in China. There’s shadow banking, there are other banks emerging, there are still the Big Four state banks, which banks are emerging? Which are the BVI dealing with, or will be dealing with in the near future?

Ellie Crespi : The BVI deals with all of the big state banks, a raft of shadow banks, and we’re seeing a lot of fund finance being done. The general trend we’ve seen is the banks we usually used have moved away from leveraged finance. China Minsheng Bank, for example, are writing leveraged debt for the first time. Exim Bank are very active, CCB (China Construction Bank), Citic, so we’re seeing a very, very different constituency of banks coming to us on BVI transactions. They seem to be pretty comfortable with these other companies already. That’s the thing we’ve found – we’re not receiving unsophisticated queries on boilerplate issues. The banks know what they are doing. Their in-house teams are already familiar with BVI entities. So, I think it’s good news and a good story for the BVI.

Aisling Dwyer : There’s still a lot of comfort with the BVI and less of a tendency to feel they need to use Hong Kong companies, although the benefits of using Hong Kong companies are increasing. For wealth succession, we need to get more sophisticated structures in the BVI to ensure that our trust companies are used for succession planning.

Ellie Crespi : On the account opening front, the irony is that we have found Singapore banks to be much more helpful than Hong Kong banks. I just spent three days in Singapore and people said they still need the BVI to structure funds. On the one hand Singapore is a competitor and on the other hand it’s friendlier to BVI companies than Hong Kong.

Marianne Rajic : I think the reason the banks are so comfortable with the BVI is that the regulation on account openings has been in place since 2007 and has been tested, so I don’t know if in reality that means it’s easier to enforce, it probably is. It allows the banks to tick the boxes, and I think there is increasingly more ticking of the boxes.

Q: Claire, you brought up infrastructure before, and I want to shift into the Belt and Road initiative, and how real is all of that and how real is the infrastructure play in Asia and what role can the BVI play in that going forward?

Claire Fulton : To answer the first question, I think it’s very real. We were involved in the first initiative of the Belt and Road project, so yes, it’s real, it’s a focus from an Asian financial services perspective. I read something a couple of weeks ago that suggested trillions of dollars need to be invested in infrastructure and will be invested, not just by the Chinese banks – I agree with Ellie’s point that we are seeing the rise of Chinese banks being the leaders and spearheading their involvement in that campaign – but indeed some of the international banks such as HSBC came out in the press last week pledging their support, because we’re dealing with a massive region here, which has a fairly underdeveloped or immature infrastructure set up. Each of these regions wants to keep pace with global development and globalization, which I think is the primary focus, so there needs to be huge expenditure in that space. Yes, it seems very real and from our involvement in projects it’s happening and there are deals being done and there are many more in the pipeline.

Q: Does the BVI have a role to play?

Claire Fulton : Absolutely, that’s been our role predominantly throughout these transactions, and it’s exactly that. A lot of projects in that initiative have been driven from China and they do appear to be very comfortable with the BVI structures. So that is, from my experience, the jurisdiction we’ve seen used the most.

Frances Woo : Other than China and the Belt and Road, there are very few new frontiers in infrastructure, particularly if you are looking at the developed markets, and to the extent that the US wants to invest in infrastructure, that could be bogged down for quite a while, depending on how political discussions progress. For a lot of these countries that are looking to expand their infrastructure, we’re going to see quite a few partnerships, between China and the UK, China and the EU, China and the US, China and Australia, because they are all going to try to pile in to get a piece of the action. That goes to Marianne’s point, when we’re dealing with the BVI, with structures that are fairly ubiquitous, and there’s a high comfort level with that, it’s a vehicle that can be used for, and pool together, a lot of the international investment in a way that permits comfort in that investment, particularly in permitting for exits. And so, this is what investors need and what the international community is getting so excited about.

Q: Is the BVI fully engaged in this effort, or are there more things the BVI should be doing?

Frances Woo : Certainly, there are more things that the BVI can and should be doing. I think to a certain extent a lot of the initiatives and policy were driven by the central government in Beijing, and they’ve earmarked trillions of dollars in funds attached to that, but in tandem with that, you’ve got private industry and the private sector in any number of different fronts that I think the BVI could be aligning themselves with and engaging in dialogue with, because to an extent on a policy level it’s been set, and to an extent the SOEs (Stated-owned Enterprises) and the banks are aligned with that. But there are a lot of ancillary businesses that are going to be part and parcel of this journey, and so there are various associations that the BVI could be talking to. At the SOE level they might know about it, but how do you get to the end-user level, and I think more work can be done there.

Ellie Crespi : That’s a good point. In Hong Kong, the BVI could work with private wealth individuals from China.

Aisling Dwyer : I was just looking up, in connection with the AIIB (Asia Infrastructure and Investment Bank) that Jersey has managed to make an application to be a member of that through the UK. I wonder if the BVI, as an Overseas Territory, might be able to do something else.

Marianne Rajic : The BVI Roadshow in China last year was well received. I was really surprised by one of the seminars, where we expected 200 and there were 400, 500 people. It was a huge room and there were people standing around, and they were mostly from the private sector. There were some government events involving government agencies. But I think engaging people would be helpful, because people are already open to it.

Fiona Chan : Our experience with the seminars and conferences in China is that they are not only for investment but also for wealth transfer and succession planning. They are well-educated in the BVI structures and VISTA (Virgin Islands Special Trusts Act) trusts structures that we can offer. So, I think there’s huge potential to continue to do that because trust is an area of rapid growth in China.

Q: Is ASEAN (Association of Southeast Asian Nations) coming together as an economic bloc? Or is it still lagging? And if it is coming together, what are the current business opportunities?

Joanne Collett : I don’t want to be the negative person at the table but I don’t think so, at least not at the moment. The general feeling on ASEAN at the moment is no, everyone seems to be doing their own thing. Whether that will change I don’t know, but that seems to be the feedback at the moment.

Frances Woo : TPP (Trans-Pacific Partnership) is now dissolved, and then you had a number of initiatives with the ASEAN bloc but it seems they’re in a bit of disarray, and they’re trying to figure what is the best way or organization to move forward, to get a lot more traction. Right now, the individual members of ASEAN have their own issues they are trying to resolve.

Q: Does Indonesia present opportunities for the BVI?

Marianne Rajic : I think they did, and there is a tendency to use Singapore. It looked really promising a few years ago, but I haven’t seen Indonesia or the other members of ASEAN working together.

Q: Is there an opportunity with Thailand?

Ellie Crespi : Thailand is in the same category as Indonesia. We are still servicing those jurisdictions, but we are not seeing a lot of growth.

Q: Where are we seeing growth?

All : China.

Connecting China’s Belt and Road

Frances Woo : Along the Belt and Road there are 65 countries, so there’s a lot to be done and a lot to focus on. China is the catalyst, but equally, start to focus on what are the big-hit countries within Belt and Road, start focusing and developing those, and creating a demand in those countries, because essentially China is very, very large in a way, but even the third tier and fourth tier cities are so huge it becomes a question of which one to address. It might be easier to go into some of these smaller countries to get first mover advantage.

Fiona Chan : For the Belt and Road as you mentioned, there are so many countries. What we found is that the countries that stand out have a government talking to the Chinese government. There is a government plus delegation that visits the country and a contract is signed for a huge infrastructure project, a railway or a canal. Those are the countries that benefit a lot from Belt and Road. I don’t know how long it would take to move around 65 countries, but the political factor is important in determining which countries stand out from the 65.