Contributed By Bowmans
Over recent years, significant emphasis has been placed on the implementation of a full-fledged risk-based approach to enhance the effectiveness of the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) banking system. These measures involved a profusion of training programmes aimed at enhancing the skills of the various licensees and market players and updating the existing AML/CFT Guidelines.
In parallel, the loan market proved resilient, with the Key Repo Rate, or repurchase rate, being reduced to 1.85% to support the economy. With high liquidity on the debt market and a healthy capital adequacy ratio of banks averaging 7% above the minimum regulatory threshold, the lending market has remained robust, while keeping a non-performing loan ratio of around 5%.
In light of the COVID-19 pandemic, banks have adopted more relaxed lending standards, which allowed for easier credit facilities, including the temporary suspension of capital repayment.
The Bank of Mauritius proceeded with the setting-up of the Mauritius Investment Corporation (MIC) with the aim of financially sustaining key economic players and other institutions whose finances have been negatively impacted by the pandemic.
Special lines of credits were also put in place by various financial institutions to support economic operators.
The reduction of the repo rate by the Bank of Mauritius has also positively impacted repayment capacity.
The ability of corporates to raise finance by issuing high-yield corporate bonds has made them less reliant on banks for funding. Some corporates also leverage on high-yield bond structures to refinance existing bank loans via bond issuance.
The domestic bonds market has been very active recently. From an international perspective, Mauritius has also been a popular platform for the issuance of these types of instruments, either through Mauritian special-purpose vehicles or through foreign corporates listing their high-yield bonds on the Mauritian stock exchange.
Peer-to-peer lending has proved very popular among start-ups and sole traders who seek micro financing or financing of their working capital, supply chain or business expansion.
This platform has also gained an increased interest among lenders who are currently incentivised by benefiting from an 80% tax exemption on interests derived from a qualifying peer-to-peer lending platform.
Peer-to-peer lending and crowd-funding are still, however, in their infancy and require time for mass adoption. Consequently, despite their growing popularity, the volume of funds raised on peer-to-peer lending platforms is not significant enough to disrupt the traditional lending market, which remains the favoured financing route.
From a corporate lending perspective, a clear trend in more sophisticated lending structures has surfaced. Mezzanine financing and quasi-equity instruments are being used with the aim of creating long-term value for local projects.
Local banks have also showed robust participation in syndicated financing on local and outbound projects, as well as cross-border financing.
The Finance Act 2021 brought substantial amendments to the Banking Act and Bank of Mauritius Act, with the aim of modernising the central banking legal framework, catering for the fast-evolving technological banking-related environment. In that regard, amendments were brought to cater for artificial intelligence, fintech and regtech, cybersecurity and cloud technology.
The Bank of Mauritius is also gearing up to launch its Central Bank Digital Currency (CBDC) towards the end of 2021, in line with transitioning from a cash-dominated economy to a digitised economy.
The first milestone achievement of the Bank of Mauritius rests in the recent introduction of the Mauritius Central Automated Switch (MauCAS), a fully digital hub for routing payments among operators on a 24-7 basis. The MauCAS will enable banks and non-bank operators to provide payment and value-added services through cards, mobile phones or other innovative channels while maintaining the inter-operability of different channels of payments.
Local banks have been partnering with several agencies to promote green loans at preferential interest rates and, by the same token, offering borrowers the possibility of receiving investment grants, depending on the specificities of their projects.
The Government has also expressed its firm intention of decreasing its carbon footprint, by introducing several incentives for the financing of projects in the renewable energy sectors.
From a retail perspective, the acquisition of fast chargers for electric vehicles, rainwater-harvesting systems and photovoltaic systems for domestic use are fully tax-deductible. To make electric vehicles more accessible, hybrid and electric vehicles benefit from a reduced excise duty.
Pursuant to the Banking Act 2004, no person is allowed to engage in banking business in Mauritius without a banking licence issued by the Bank of Mauritius.
Banking business is defined under the Banking Act 2004 as:
An applicant wishing to be authorised to operate as a bank must be a body corporate and must apply to the Bank of Mauritius using the prescribed form, accompanied by a non-refundable processing fee of MUR250,000 (approximately USD5,952). Among other AML, cybersecurity and related prescribed procedures and requirements, including the minimum capital adequacy ratio which the applicant needs to adhere to, the applicant must show adequate substance in Mauritius by having a principal place of business in Mauritius. In terms of staffing requirements, the applicant must have at least ten suitably qualified full-time officers, including the CEO, the Deputy CEO and key functional heads. The estimated operational costs of the applicant must not be less that MUR25 million (approximately USD595,200).
Pursuant to the Finance (Miscellaneous) Act 2020, the activity of money-lending in Mauritius is no longer within the purview of the Bank of Mauritius. The definition of “money-lender” in the Banking Act 2004 was deleted and the provisions in respect of licensing of moneylenders have been repealed.
Money-lending activities are now regulated by the Financial Services Commission of Mauritius. The Financial Services Act 2007 provides that, subject to certain exemptions as provided under the Fifth Schedule of the Financial Services Act 2007, any person, other than a bank or a non-bank deposit-taking institution, whose business is that of money-lending or who provides, advertises or holds himself or herself out in any way as providing that business, whether or not he or she possesses or owns property or money derived from sources other than the lending of money, and whether or not he or she carries on the business as a principal or as an agent, is required to apply for a licence with the Financial Services Commission.
An applicant wishing to be authorised to operate as a non-banking financial institution conducting money-lending activities must be a body corporate and must apply to the Financial Services Commission using the prescribed form, accompanied by a non-refundable processing fee, which varies depending on the type of licence being applied for. Among other AML, cybersecurity and related prescribed procedures and requirements, including the minimum paid-up and unimpaired capital which normally ranges around MUR50 million (approximately USD1,190,000) which the applicant needs to adhere to, the applicant must show adequate substance in Mauritius by having a principal place of business in Mauritius and complying with other prescribed requirements.
There is currently no restriction on foreign lenders to grant loans from their foreign jurisdiction. However, if those foreign lenders intend to carry on the business of money-lending in Mauritius, they should first obtain the appropriate licence from the Financial Services Commission or the Bank of Mauritius, depending on the activities that it wishes to conduct.
There are generally no restrictions which would prevent the granting of security or guarantees to foreign lenders in Mauritius. However, when a security involves the taking of a fixed and/or floating charge, certain elements as to the activities of the charge-holder will need to be considered.
Under the Mauritian Civil Code, a fixed and/or floating charge can only be granted in favour of an Institution Agréée (the Civil Code Restriction).
An Institution Agréée is, effectively, an approved institution, as listed in the Institution Agréées Regulations 1988, which lists certain entities as approved to hold a fixed and/or floating charge, and include “any body corporate not registered in Mauritius and having no place of business in Mauritius”.
Although the description of that approved body may appear broad, the Civil Code Restriction has been interpreted narrowly by the Supreme Court (vide Atelier Etude Limousin & others v BPCE International et Outremer & another 2014 SCJ 166).
In light of this judgment, the approach of the market has been that, in order for a foreign entity to benefit from a fixed and/or floating charge, it must necessarily be a “financing institution”, as opposed to merely being a foreign entity which may not necessarily be involved in the financing business.
The Foreign Exchange Control Act was suspended in 1994. As a result, there is currently no exchange control requiring approval for payments outside of Mauritius or repatriation of profits, dividends, or capital gains earned in Mauritius.
Although there are no legal restrictions under Mauritian laws applicable to the borrower’s use of proceeds from loans or debt securities, contractual restrictions on the borrower’s use of proceeds from loans or debt securities which are mutually agreed between the lender and the borrower are frequently seen.
The trust concept is recognised under Mauritian laws. The Civil Code also provides for general concepts which are used as alternatives to the agency concept, such as the “mandat” (which corresponds to agency) and the “tiers convenu” (which is a third party mutually appointed by the parties for the purpose of holding the security).
It is not uncommon that local banks are appointed to act as security agents for the benefit of foreign lenders where charged assets are located in Mauritius.
Loans are transferred by way of novation or assignment and associated security packages are transferred by way of assignment. However, where security agents are appointed to hold security, a change in lenders or a transfer of loans, these are unlikely to affect the security.
The laws of Mauritius do not restrict a debt buy-back by the borrower or sponsor. However, it is recommended that the borrower or sponsor consider the appropriate structuring and address potential tax liabilities.
There are no specific rules applicable to “certain funds” in respect of public acquisition finance transactions. However, when dealing with a potential takeover, the law requires that an offeror should give a firm intention to acquire the target, containing a confirmation by the board of the offeror that sufficient financial resources are available to satisfy the acceptance of the offer. Similarly, where the offer includes a non-cash consideration, the confirmation should provide that all reasonable measures have been taken to secure full payment of the shares acquired.
Under the laws of Mauritius, there is no withholding tax for any payment made by a company holding a global business licence in Mauritius to lenders not carrying out business in Mauritius.
Value-added tax (VAT) is applicable at a flat rate of 15% to VAT-registered entities on all goods and services supplied by them in Mauritius, subject to certain supplies being exempted under the Income Tax Act 1995 and the various income tax regulations.
Registration duty is payable on the registration of a deed, the rate of which depends on the nature of the transaction witnessed by the deed under the Registration Duty Act 1804.
A Mauritius law-governed fixed and/or floating charge, mortgage and a bordereau pursuant to an assignment agreement are required to be registered (and inscribed for fixed and/or floating charges and mortgages), while registration of finance documents and security documents other than those aforementioned are at the option of the lender.
The concept of usury laws does not figure in Mauritian laws. However, the Mauritian courts have the discretion to review downwards the interest amount if it is deemed excessive.
The assets available as collateral to lenders in Mauritius consist of:
The common forms of security granted are as follows.
A share pledge
The pledge of a shares agreement is executed between the pledgor, the company in which the shares are pledged and the pledgee. The pledgee is required to procure the delivery of the following to the pledgee:
Fixed and/or floating charge
The fixed and/or floating charge agreement is required to be registered and inscribed with the Registrar General and the Conservator of Mortgages of Mauritius. A memorandum setting out details of the charge must be affixed to the deed prior to the inscription. The chargor must deliver the registered deed of fixed and/or floating charge and provide satisfactory evidence of registration and inscription to the secured party.
The deed of mortgage, to which must be annexed a memorandum (bordereau), must be inscribed in the registers of the Conservator of Mortgages.
Assignment under the Commercial Code
A memorandum, known as a bordereau, which witnesses the assignment and forms part of the perfection requirement thereof under the Commercial Code, must be executed by the assignor and must be registered in the interest of the assignee with the Registrar General. The registered bordereau must thereafter be delivered to the assignee by the assignor.
A notice of assignment must be sent to the account bank and a “bordereau” confirming details of the pledge must also be executed by the pledgor.
Pledge of business undertaking (fonds de commerce)
The pledge of business undertaking is created under a deed prepared by a notary public or a deed under private signature and must be registered with the Registrar General of Mauritius. The registration with the Registrar General must be made within 15 days of the signing date of the pledge agreement.
Timing and Costs Involved
Depending on the type of entity involved, registration must be effected within eight days or up to three months for companies holding a global business licence (except for the pledge of business undertaking which must be registered within 15 days from the date of the security document). The registration process takes around three business days to complete. Registration duty and administrative fees (formerly stamp duty) payable to the Registrar General, amount to around MUR50,700 (approximately USD1,200) per document. Inscription of charges would also incur an additional inscription fee of around MUR1000 (approximately USD23).
The Mauritian Civil Code allows for the creation of a floating charge over all present and future assets of a company as security.
Downstream, upstream and cross-stream guarantees are generally permitted. This type of security is generally granted by way of a corporate guarantee, as provided under the Mauritian Civil Code. However, giving such a guarantee could be restricted where it amounts to providing financial assistance.
The laws of Mauritius restrict a target from providing a loan or guarantee or any form of security where the purpose of such a loan, guarantee or security is for the acquisition of the target’s own shares. In these circumstances, specific conditions must be adhered to by the target before it is permitted to provide any such financial assistance.
Except for the aforementioned restrictions, there are generally no other restrictions in connection with, or significant costs associated with, or consents required to approve, the grant of security or guarantees.
A security is generally released only when the secured obligation has been paid in full and all facilities which gave rise to the secured obligation have been terminated. However, when dealing with the release of mortgages and fixed and/or floating charges, an additional procedure is required to ensure that the security is erased from the public registers of the Conservator of Mortgages. The erasure is formalised by a letter from the secured party to the Conservator of Mortgages confirming the discharge of the secured obligation, the release of the security and requesting the erasure of the security from the registers of the Conservator of Mortgages. In respect of pledges and assignments, the secured party is required to return all documents delivered to it at the time of perfection of the security (which include share certificates, blank transfer forms or, in some instances, the bordereau), and counterparties will update their internal records to reflect the discharge and release.
By way of exception, the parties can also mutually agree to release the security before the discharge of the secured obligation. This can be done by way of a release agreement entered into between the parties providing for the release of the security.
In an event of insolvency, the Mauritian Insolvency Act 2009 provides the following ranking of claims of preferential creditors:
When competing security interests arise, they are treated equally and the lenders to the same borrower can contractually vary their priority over the security by way of a subordination agreement. The subordination or an inter-creditor agreement will generally provide that the junior lender will not receive payments from the borrower until the senior lender has been paid.
The contractual provisions of a Mauritian-governed law subordination agreement will survive the insolvency of the borrower and will be recognised and given right in an insolvency procedure.
The circumstances for a secured lender to enforce a security will depend on the contractual provisions of the financing and security documents and on the type of security granted to the lender. In general, an event of default must have occurred under the finance and security documents which will trigger the enforcement of the security.
The choice of a foreign law as the governing law of the contract will be upheld in Mauritius.
A foreign judgment or arbitral award against a Mauritian company will be enforceable in Mauritius without a retrial of the merits of the case, subject to fulfilling the necessary exequatur procedures to recognise that foreign judgment or arbitral award.
When a foreign lender does not own any immoveable property in Mauritius, the debtor (as defendant) can apply for an order for the foreign lender (as plaintiff) to provide security for its costs before proceeding further with any claim in court.
The Insolvency Act 2009, which is the principal legislation dealing with the insolvency of companies, sets out the formal mechanism for the rescue or reorganisation of a company, which is the voluntary administration of a company.
The aim of a voluntary administration is to enable a business, property and affairs of a company to be administered in a way (i) to provide an opportunity for the company and its business to continue to exist or, should the former scenario not be possible, (ii) to provide a better return for the company’s creditors and shareholders, compared to an immediate winding-up of the company.
The administrator may be appointed by the company in administration, by a secured creditor holding a charge over the whole/substantially the whole of the company’s property or a buy-order of the court.
The Mauritius Companies Act 2001 further provides other mechanisms for company rescue, which include:
The facility agreement will generally treat an insolvency event as an event of default and will usually include mechanisms where, upon the occurrence of such an event, the lender may have recourse to claim repayment of the loan and to enforce the security or guarantee which was provided to secure the loan amount.
Pursuant to the commencement of administration under the Insolvency Act 2009, while a company is in administration and upon the appointment of an administrator, a lender cannot enforce a charge on the property of the company except with the written consent of the administrator or with the permission of the court and on terms that the court thinks appropriate.
This restriction, however, does not apply in the case of a secured creditor, ie, a person who holds a charge on or over the property of the company and includes the holder of a “gage”. The secured creditor may apply to the court for an order granting leave to him or her to enforce his or her security within a specified period after the company has been put into administration.
The restriction does not further apply to those secured creditors who have already taken steps to enforce their rights to recover the property before the beginning of the administration of the company.
In an event of insolvency under the Insolvency Act 2009, the order of priority in which the following persons are entitled to be paid out the property of a company are as follows:
The doctrine of an equitable subordination does not exist under the laws of Mauritius.
Potential risk areas which the lender may face, upon a borrower, security provider or guarantor becoming insolvent, are as follows.
A voidable preference is a transaction which involves creating a charge over the debtor’s property and incurring an obligation, and which (i) has been entered into by the company as a debtor at a time when the company is unable to pay its due debts and which (ii) enables another person to receive more towards satisfaction of a debt by the company than that person would receive in the bankruptcy or liquidation.
A voidable preference, which was made within two years immediately before adjudication or commencement of the winding-up, may be set aside by the court upon an official receiver or a liquidator making such an application.
A charge over a property or undertaking of a debtor, given within two years before the debtor’s adjudication or the commencement of the winding-up and where, immediately after the charge was given, the debtor was unable to pay its due debts, may be set aside by the court upon the application of an official receiver or a liquidator.
Mauritius has enacted several legislations to cater for the increasing demand of development in various sectors of the economy. Several parastatal bodies were also set up to facilitate investments and the setting-up of projects of various types.
Banks and other financiers have also been playing a major role in the financing of projects in Mauritius.
A series of attractive fiscal measures were put in place to encourage development in renewable energy, which has triggered an array of sizeable projects involving wind farms, solar farms and waste-recycling.
Most project finance is privately owned, although the government is also involved, particularly in energy projects where they stand as the sole power-purchaser for grid distribution.
The Mauritian government has promulgated the Public-Private Partnership Act 2004, which came into force on 1 March 2005 (the PPP Act).
The PPP Act provides for the implementation of PPP agreements between contracting authorities and private parties and establishes a set of rules governing public-private procurement.
Over the years, the main PPP projects have involved the energy sector, with the setting-up of various power plants using fossil fuel and renewable sources, the development of the freeport zone and airport terminal and the setting-up of a waste-water treatment plant.
There are currently ten active projects in the country, with active investments exceeding USD940 million.
Government approval will be required to obtain the necessary permits and licences. Non-citizens who have an interest in a project which would own immovable property (such as land) could also be required to obtain the Prime Minister’s approval prior to acquisition of the land or leasehold right.
Certain application fees may also be required at the time of applying for the specific licences.
There is generally no requirement to register any application document, although some finance documents would require registration with the Registrar General’s office.
The Ministry of Energy and Public Utilities (the MOE) oversees the formulation of policies and strategies in the energy, water and waste-water sectors, radiation safety and nuclear security and is responsible for the establishment of a responsive legal framework to govern the development of these sectors.
The government has set up various statutory bodies to manage these sectors:
Other government bodies:
The ownership structure is the primary concern for a project - the type of vehicle used and how it is organised to "house" the investors and financiers. Traditionally, a private company limited by shares would be the favoured option, but other structures may be more appropriate, depending on the type of project.
Where immovable property would be owned or leased over a period by the project vehicle, approval from the Prime Minister’s office would be required if non-citizens would be holding a direct or indirect shareholding or interest in the project company, except where certain exemptions are provided.
The financial structure would also be of relevance in determining how the project would be financed, which could involve equity, short-term and long-term loans, bonds (listed or unlisted), quasi-equity and the determination of the relevant revenue streams to service the debts. Each type of financing would require specific attention in order to comply with the regulatory environment.
Depending on the type of project, the financing may be effected using traditional banking methods. Renewable energy-related projects may also receive financial support from specific agencies. The use of bonds is another method for raising finances and there have also been talks about the Government relaxing its legislation to raise finance by issuing bonds in order to finance its sustainable development projects, including renewable energy.
Mauritius does not have any natural resources to export, as yet.
The Environment Protection Act is the main legislation governing environmental issues relating to projects. It provides for the necessity of a promoter to prepare an environment impact assessment (EIA) or a Preliminary Environmental Report (PER), as the case may be, and to obtain the necessary EIA Licence or PER Licence with whatever conditions may be imposed by the governing body.
The Environmental Assessment Division of the Ministry of Environment, Solid Waste Management and Climate Control is responsible for ensuring the identification of any environmental impacts of major projects and for addressing any issues at the inception of a project. This division is also responsible for ascertaining that appropriate measures are taken to mitigate adverse environmental impacts, enhance the positive impacts and promote sustainable development. EIA Licences and PER Licences are issued by this division.