Cayman retains lead in offshore deals

Cayman Islands-based entities were engaged in 155 acquisitions, initial public offerings and other offshore deals with a cumulative value of US$13.68 billion in the third quarter of 2014, according to a report by law and fiduciary firm Appleby.

Cayman accounted for 25 percent of the total deal volume and 29 percent of the amount spent in offshore transactions.

“In the last two years, we have seen the Cayman Islands consistently emerging as the destination of choice for investors in offshore assets, and this quarter proved no exception,” said Simon Raftopoulos, a Cayman-based partner and member of the firm’s corporate finance and insurance teams. “While Cayman’s dominance was not as stark as it has been in previous quarters, the jurisdiction continues to attract many of the largest offshore transactions.”

According to Appleby’s Offshore-i report, which collects transactional data from initial public offerings, joint ventures, mergers and acquisitions in major offshore financial centers, Hong Kong and the British Virgin Islands trailed Cayman with 114 and 110 transactions respectively. In terms of the dollar amount involved, the BVI and Bermuda followed Cayman with cumulative deal values of US$10.99 billion and US$8.47 billion.

The largest deal of the quarter involved the $2.4 billion acquisition of a 69 percent stake in Cayman-based Formosa Ha Tinh by China Steel Corp. and Formosa Plastics Group. The 10th largest transaction of the quarter was the $961 million purchase of Cayman computer games publisher Diandian Interactive by Zhongji Investments of Hong Kong.

Overall, the third quarter experienced a 46 percent decline in the value of all deals. However, the period followed a strong second quarter which included the initial public offering of Alibaba.

The total number of 626 deals was slightly less than the 677 transactions in the previous quarter but continued a stable run of more than 600 deals per quarter since the first half of 2013. The average deal size was $77 million and nine transactions were valued above $1 billion.

“Overall, the year 2014 is set up to be a peak year for value of deals conducted in our offshore markets,” said Cameron Adderley, partner and Global Head of Corporate & Commercial at Appleby. “The first three quarters of the year have a combined total deal value north of US$200 billion, which has only been exceeded in two years over the last decade. This year should surpass even those two annual totals when the Q4 numbers are included.”

In the first nine months of 2014, the average deal size of $102 million even exceeded the boom year of 2007 when the average was $100 million, Appleby said.

While overall the finance and insurance sector attracted most of the deals, the top 10 transactions of the quarter covered a wide range of sectors, with two deals each involving companies in raw materials, finance, manufacturing and real estate.

The report highlighted a noticeable drop of initial public offerings by offshore firms, with only eight completed IPOs during the third quarter. Appleby blamed the global economic slowdown for the decline and noted that companies are holding off, fearing they could be hit by a strong stock market correction. Only 14 IPOs are planned for the near future, compared to 25 in the second quarter.

In contrast, share buybacks are becoming more popular. The 10 programs of companies buying back their own stock during the period amounted to a combined value of $3.1 billion, making it the third largest transaction type behind acquisition and minority stake purchases. Companies buy back their stock to return money to shareholders when it is a tax-efficient alternative to the payment of dividends, or because they believe their share price is undervalued.

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