Beautiful Bermuda, but investors told to tread with caution in the case of offshore listings

Next week, if all goes to plan, the Stock Exchange will welcome the listing of Zeta Resources, its 11th company incorporated in the Caribbean tax haven Bermuda.

Bermuda is not the only exotic home claimed by ASX-listed companies — S&P Cap IQ data shows there are three groups from the Channel Island groups, one each from the Cayman Islands and British Virgin Islands, and even one from the Isle of Man.

But takeover drama at Miclyn Offshore Express, one of the 10 Bermudian companies already listed on the ASX, illustrates that investing in the sunny island nation poses more risks than just the possibility of a visit from Tax Office auditors.

Private equity firms CHAMP and Headland Capital Partners last month increased their joint holding in Miclyn, a shipping services company, to 75 per cent, without mounting a takeover bid.

This would have been impossible if Miclyn was an Australian company, because under most circumstances our laws require a takeover bid to be made when a shareholder reaches 20 per cent ownership. There is no such provision in Bermudan law.

Both the ASX and the Australian Securities and Investments Commission say that as long as Bermudian companies explain to shareholders that they have less protection than they would if the company was incorporated in Australia, it's up to investors to make sure they understand the risks.

ASX spokesman Matthew Gibbs said the bourse "focuses on ensuring adequate disclosure, so that potential investors can inform themselves about the implications of investing in a foreign incorporated company".

Investors should take care when considering a company that is based offshore, an ASIC spokesman said.

"When deciding to invest in these companies stop to consider where that company actually carries out its business, and what challenges and risks might arise.

"Companies incorporated overseas will have different rules that apply to them, for example when there is a takeover."

By contrast, the takeover rules in Singapore — a popular listing destination for Bermudian companies — state that they apply to "corporations with a primary listing of their equity securities ... in Singapore", regardless of where they are incorporated.

As for Miclyn, it looks likely to pass into the hands of CHAMP and Headland.

A fortnight ago, the private equity funds asked Miclyn to hold a special meeting of shareholders to appoint two nominees to the board, giving them effective control.

And they have left the door open to privatising Miclyn at a lower price than the $2.20 they paid for their latest tranche of shares.

Miclyn's general manager of investor relations Adam Clayton said he has never been to Bermuda.

The company has its offices in Singapore, a traditional hub for shipping companies servicing the offshore oil and gas industries.

Mr Clayton said Miclyn's decision to incorporate in Bermuda was "not about getting around those corporate governance issues".

"My understanding is that it's more around tax issues," he said.

He admitted that if CHAMP and Headland appoint their extra directors, Miclyn will be in breach of ASX guidelines requiring a majority of directors be independent.

"We are bound by Bermuda law," he said. "Those guidelines are just guidelines."

Corporate governance expert Ian Ramsay, a professor at the University of Melbourne and a former member of the Takeovers Panel, said he wasn't aware of Bermudian takeover rules.

The island was not one of the jurisdictions included in a paper he co-wrote last year comparing shareholder protection around the world.

"We're extending the research now into more Asian countries," he said. "In summary, Australian shareholder protection is very strong — of the countries that we looked at over a 40 year period, Australian shareholder protection by and large has been the strongest."