Macau SAR: looking at perpetual bonds – the advantages of debt as equity
João Nuno Riquito and Belmiro Leong of Riquito Advogados consider how the issuance of perpetual bonds can benefit companies in Macau SAR
A recurrent subject and concern, these days, in the legal and financial advisory to corporations in Macau SAR, is that of addressing the requirements imposed by Section 206 of the Commercial Code for when the company’s net asset value (NAV) drops below half the value of its capital.
Aside from the ‘traditional’ solutions of capital reduction/increase, quasi capital, asset revaluation and measures of a similar nature, it is worth noting that the issuance of perpetual bonds, whilst remaining one of the least used solutions, may in the circumstances, prove to be an excellent alternative.
Perpetual bonds are considered an equity instrument whose issuance contributes positively for the NAV of the company, as unequivocally demonstrated in paragraphs 16(a), 16(b) and AG13 of International Accounting Standard 32 (applicable in the Macau SAR ex vi the Administrative Regulation of the Chief Executive No. 42/2020);
From the perspective of the equity holders, the advantage may be considerable, given its (at least theoretical) non-diluting effect on shareholders who may not be willing or able to subscribe for the injection of new funds, whilst offering guaranteed remunerations prospect for the subscribing equity holders.
The issuance of perpetual bonds may be enacted by the means of a public subscription or a private placement. In the first case, the procedure must be done by a local underwriting agency in accordance with the Decree-law No. 32/93/M and the Circular No. 009/B/2019-DSB/AMCM of the Monetary Authority of Macao, with the final approval of the Chief Executive. Private placements are simply subject to compliance with the relevant provisions in the Commercial Code, and may be extraordinarily advantageous as part of an overall financing restructuring for private companies.
João Nuno Riquito
Managing partner, Riquito Advogados
Trainee lawyer, Riquito Advogados