Merits of the Mauritian PCC for Indian investment managers

In September 2019, the Securities and Exchange Board of India (SEBI), through its Foreign Portfolio Investors (FPI) Regulations 2019, liberalised rules allowing structures with segregated portfolios – such as protected cell companies (PCCs) – to register as FPIs. In this article, we provide an overview of the Mauritian PCC and highlight the key benefits of this structure for an Indian fund or asset manager.

The PCC is a corporate vehicle that authorises the lawful separation of assets owned by each cell of the company. Also known as a segregated portfolio company (SPC) in some jurisdictions, the PCC allows for greater security and flexibility in international investment structuring.

Common uses of a PCC include the holding of assets, structured finance businesses, collective investment schemes and closed-end funds, external insurance businesses and external pension schemes.

Key features of a PCC

The distinguishing features of a PCC as compared to a normal multi-class company/fund are:

• Each share class is referred to as a cell
• There is legal segregation of cellular net assets, meaning the assets of a cell will only be affected by the liabilities of the company arising from transactions attributable to that cell. This legal segregation is often described as ‘ring-fencing’ and is the main attraction of PCCs.

An example Mauritian PCC structure

Benefits of the Mauritian PCC

Mauritius provides a flexible legal framework for the establishment and running of PCCs, such that the Mauritian PCC is highly popular among fund promoters and managers with varied investment portfolios where each has its own investment strategy and risk profile. The Mauritian PCC structure is even more attractive when investors differ between each portfolio.

Potential advantages of the Mauritian PCC structure include:

• Cells can be created with different strategies, subject to the overall objective of the PCC
• It provides an alternative to a normal company structure
• It constitutes a single legal entity but with each cell ring-fenced
• There’s no minimum capital requirement imposed for the PCC or the cell(s), except in specific cases
• Each cell can apply for a separate Tax Deduction and Collection Account Number (TAN) and Permanent Account Number (PAN)
• Each cell can have its own FPI account
• Each cell can apply for its own Tax Residency Certificate (TRC)
• The PCC may effect distributions in relation to shares of a cell by reference only to that cell’s assets and the liabilities attributable to it
• The solvency test applies to each cell and not to the PCC as a whole
• It’s a cost-efficient solution as excess costs and administration burdens are eliminated
• The PCC can opt to have a single financial statement with all the cells consolidated or separate financial statements for each of its cells.

The Mauritian PCC: a case study

ABC India Asset Manager wishes to offer three distinct schemes to its investors: a Nifty 50 Index strategy, an arbitrage strategy covering the futures and options (F&O) securities of the National Stock Exchange of India (NSE), and a banking and Public Sector Undertaking (PSU) debt strategy. Each strategy will entail a different level of risk. The manager has three structuring options:

1. Set up three funds, one dedicated to each strategy
2. Set up a multi-class company whereby each class invests in one strategy
3. Set up a PCC in Mauritius. The share capital of the PCC is made up of shares of the following cells in addition to non-cellular shares held by the manager:

The comparative advantages:

Option A – perfectly segregates risks from each strategy. For instance, there is no possibility of any adverse exposure on a short position in the arbitrage strategy to affect investors of the Nifty 50 Index strategy.

Option B – is a very cost efficient solution compared to Option A, as it avoids the setting up and administration of three entities. However, there is risk contagion across strategies/classes is and this might not be acceptable to all investors.

Option C (the PCC) – is arguably the best of both worlds. It is not significantly more costly than Option B and yet offers the same level of risk segregation as Option A due to the ring-fencing feature.

ABC India Asset Manager can have each of the cells apply for its own FPI account and its own TRC in Mauritius. Further, the fixed income cell and the arbitrage cell can access the Mauritius-India Double Taxation Avoidance Agreement.

Get in touch

If you’d like to find out more about the opportunities presented by the Mauritian PCC or would like to discuss your requirements in this regard, please contact me using the details below or reach out to any of our key team members.