Acquiring a Swiss financial institution or going IPO in Switzerland: Key steps and requirements for Chinese companies

Chinese companies are increasingly looking overseas for their expansion, and are considering the options that Switzerland can offer them.

Some may consider acquiring or investing in a Swiss-regulated financial institution, because of the current low prices of Swiss banking assets and Switzerland’s world class reputation as a financial centre. Others may look closely at an initial public offering (IPO) in Switzerland, because of the advantages associated with being listed on the Swiss stock exchange, such as its deep liquidity, high valuation multiples, outstanding international reputation, market-driven regulatory environment and high-calibre advisors.

In this article, we highlight some of the key elements to consider in any acquisition of a Swiss-regulated financial institution. This includes such entities as a bank, securities dealer, fund management company, asset manager of collective investment schemes or an insurance company (all referred to as “Target”). We also take a close look at launching an IPO in Switzerland.

Acquisition of a Swiss financial institution

Transaction Structure: A Chinese buyer can acquire a Target under Swiss law in many different ways, such as: (1) in a public takeover in the event that the target company is listed on a Swiss stock exchange; (2) a merger by means of an absorption or combination of multiple companies, (3) by purchase of shares (share deal); (4) an individual acquisition of assets (regular asset deal); (4) a de-merger by spinning of a business in exchange for shares in the acquiring company; and (5) an acquisition of assets and liabilities in bulk by means of a specific transfer agreement of selected assets and liabilities listed on an inventory.

The preferred transaction structure will depend upon the goals pursued by the acquisition and the riskiness of the Target. Share deals were the most preferred acquisition method prior to the financial crisis. However, asset and liability deals in bulk have recently replaced share deals. This is because they provide the ability to cherry-pick assets and clients and omit any potential non-quantifiable liabilities attached to ailing Targets, e.g. as a result of impending tax claims by foreign authorities directed at the Target.

Swiss banking secrecy: This feature of operating in Switzerland still has a high impact, and deserves special mention. It generally involves the protection of the secrecy of banking customers’ data. The practice of Swiss banking secrecy affects an acquisition on multiple levels. The names of the bank’s clients might neither be disclosed in the due diligence process nor on the inventory list to be submitted to the commercial register, in case of an asset transfer in bulk.

Regulatory treatment of a transaction by FINMA: The Swiss Financial Supervisory Authority, FINMA, must be informed in detail about any transaction related to a Target. It also has the right to approve such a transaction and to request additional information. FINMA is generally an approachable and reasonable regulator. Much can be gained by approaching FINMA proactively – preferably with a local representative — and clearly communicating the strategy pursued by the acquisition. In a merger or a substantial banking asset transfer, a new licence will have to be obtained from FINMA in case the entity resulting from the transaction will engage in an activity requiring supervision by FINMA.

In a share deal, anyone buying or selling directly or indirectly a participation of at least 10 per cent in the Target or having a material impact on the business activity of the Target must undergo an approval process with FINMA. The authority must also be notified of any later increase or decrease of such a participation exceeding or falling below 20 per cent, 33 per cent, or 50 per cent of the capital or voting rights. FINMA must also approve the purchase by any non-Swiss person or entity (e.g. Chinese) of a qualified shareholding in a Target. In case the Target becomes part of a financial group or conglomerate headquartered in China, adequate supervision in China is required to get FINMA’s approval.

IPOs for Chinese firms in Switzerland

Launching an IPO in Switzerland is a smooth and efficient process. Any IPO candidate has the choice between five main segments, each having different listing criteria and requirements for operating as a public company:

Main criteria for going public

Compliance with local law: The establishment, the articles of association, or the deed of partnership of the issuer must comply with the national law to which it is subject. The auditing body of the issuer must be admitted as an auditing company under state oversight or be subject to a recognised foreign audit oversight authority.

Track record: The issuer must have existed as a company for a minimum of three years and presented its annual accounts for the three complete financial years that precede submission of the listing application, such accounts being in conformity with the accounting principles to which the issuer is subject. Exemptions might, however, be granted.

Minimum capital requirements: Capital resources must amount to at least CHF25m (USD25.2m). If the issuer is the parent company of a group, this requirement refers to consolidated capital resources. A guarantor providing a guarantee can step in to fulfil this requirement.

Securities: At the time of listing, the securities must have been issued in accordance with the law to which the issuer is subject and must satisfy the provisions that apply to those securities. The form of those securities must also comply with the law that applies to both the securities and the issuer. The listing must comprise all of the issued securities in the same category. The proper trading of securities on the stock exchange must be ensured, and there must be rules on establishing legal ownership. Securities that are subject to approval or to restrictions with respect to potential purchasers may be listed if their tradability is guaranteed and there is no risk to the fulfilment of the transaction.

Financial statements: The issuer must have produced annual financial statements that comply with the financial reporting standards applicable to the issuer for the three full financial years preceding the listing application.

Free float: Distribution of equity securities must have reached an adequate level by the time of listing — at the latest. An adequate level of distribution is reached if at least 25 per cent of the issuer’s outstanding equity securities of the given category are in the hands of the public, and the capitalisation of the equity securities in the hands of the public amounts to at least CHF25m (USD25.2m) — or, if the capitalisation cannot be calculated due to lack of off-exchange trading, a projected capitalisation to the same amount.

Main requirements as a public firm

Financial Reporting: Depending on the chosen segment, the listed company will have to report financials based on Swiss GAAP, IFRS, or US GAAP, and on a semi-annual or annual basis.

Corporate Governance: The listed company will have to comply with certain basic requirements related to corporate governance and must report any changes to these requirements.

Ad hoc publicity: Any new information related to company matters that has the potential to materially influence the stock price of the listed company must generally be reported immediately in most segments, unless certain exemptions or reasons to postpone the disclosure apply.

Management transactions: Any transactions in stocks or options of the company’s management or closely related persons must be reported and disclosed in most segments.

In no segment, however, can insider lists be established.

The IPO process

The IPO process in Switzerland consists of five distinctive phases. The approval process at the Swiss stock exchange takes only approximately four weeks. Please refer to the chart below:

Please get in contact for your free consultation:

Martin Liebi
Tel: +41 58 792 2886

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Martin Liebi

Dr. iur. Martin Liebi LL.M., attorney-at-law, CAIA, advises on and implements as Head Capital Markets within Pricewaterhouse Coopers Ltd. Legal FS Regulatory & Compliance Services practice, a wide array of regulatory change management programs.

Martin Liebi has more than 14 years experience with leading Swiss and US law firms in the areas of capital market law, banking law (private banking, asset management, and investment banking), financial market regulation, securities law, corporate law, M&A, and general commercial law.

He has been head legal with a Swiss Private Bank and head compliance with a Swiss Fund-of-Hedge Funds. He has studied law at Stanford University (LL.M.), the University of Zurich (Dr.iur.), the University of Fribourg (Lic.iur.), and Leiden University (LLC). He holds also a Management Degree from Harvard University.

He serves as judge at the commercial court of Zurich and is a lecturer at the University of Zurich’s LL.M. program in Banking & Finance (Regulation of European Capital Markets as well as Regulation of Banks and Securities Dealers). Martin Liebi publishes and holds talks regularly about current topics in financial markets law.