Official Blog – Cleantech, Investments, Bonds

Transparency of Regulatory System

Regulations affecting both local and foreign investors are generally transparent and applied in a nondiscriminatory manner.

In the past, cartels were endemic to the Swiss economy. Companies in a number of industrial and service branches organized themselves, through trade and industry associations, into horizontal and vertical cartels. Such arrangements existed in the market for prescribed medicines, sanitary ware, kitchen equipment, optical products, books, beverages, food retailing, dietary products, and many other sectors of the economy.

The Swiss cartel law specifically allows cartels unless the government concludes that they are harmful to society or the economy. On June 12, 2003, the Swiss Parliament adopted a revised competition bill, which subsequently entered into force on April 1, 2004. The most significant improvements in the revised law include the authority to sanction anti-competitive behavior without prior warning, with a maximum fine of ten percent of a firm’s total combined revenue for the past three years. Whistle-blowing companies that cooperate with regulators are eligible for a reduced fine (leniency program). The transition period for adapting to the new law ended on April 1, 2005. According to IMF and OECD reports, Switzerland’s gross domestic product could grow by an extra 0.5-0.8% a year if all cartels were eliminated.

In general, the Competition Commission considers vertical agreements with less than 20% of market share as insignificant, whereas others potentially face a fine. Cartels with over 50% of market share will be fined. Restrictions on the sale of components or spare parts are generally unlawful.

A number of administrative requirements restrict retail operations in the domestic market. These include planning regulations, local building codes, advertising restrictions, standards for equipment, approval procedures, and opening hours for shops. Although such measures are not intended to be discriminatory, their practical effect can be to limit market access for large discount retailers. Bureaucratic procedures are numerous, but generally transparent and nondiscriminatory.

A recent independent study highlighted the wide discrepancies in efficiency that exist between the country’s many cantonal administrations. While Zurich, Basel, Bern, Jura, Valais, and Neuchatel get full marks for their cost-efficient services, including public access to government services on the internet. Other cantons, such as Geneva and Vaud, are criticized for being too bureaucratic, unfriendly and for taking twice as much time and money to deliver the same set of services. The study found that, for example, a work permit cost 200 francs in Lausanne and was delivered on average after 41 days, whereas a permit in Zurich cost 65 francs and was delivered in 12 days.

Switzerland’s strong economy shows that good institutions and competent macroeconomic management, coupled with world-class educational attainment and a focus on technology and innovation, are a successful strategy for boosting economic competitiveness. Business activity benefits from a well-developed institutional framework, characterized by the rule of law, an efficient judicial system and high levels of transparency and accountability within public institutions. Excellent infrastructure is an additional positive feature of the business environment. The indicators also point to the rapidly growing importance of higher education and training as engines of productivity growth.

Efficient Capital Markets and Portfolio Investment

The efficiency of the Swiss capital market has helped make Switzerland a leading financial center. The Swiss franc denominated foreign bond market is one of the largest markets for foreign borrowers, and Zurich is one of the largest gold trading centers in the world. There are generally no restrictions on the purchase or sale of foreign currencies and equities. Residents and non-residents may conclude foreign exchange contracts, whether of a commercial or financial nature, in all currencies. Foreigners and Swiss nationals can make “forward transactions” at prevailing market rates. Payments for imports from all sources may be made freely, and exporters can freely transfer their proceeds. No legal impediments apply to payments for or receipts from invisibles. The repatriation of invested capital is unrestricted. The Swiss credit market is open to foreign investors on the same terms and conditions as for Swiss investors. A variety of credit instruments are available to the private sector.

To prevent the misuse of Switzerland’s liberal market framework for money-laundering or criminal activity, provisions to regulate certain aspects of portfolio investment are regularly updated. One important firewall established by the Swiss banking industry is the 1997 Due Diligence Convention, under which banks must identify the beneficial owner of the invested funds. The EBK (now FINMA) updates the 1997 Due Diligence Guidelines on average every five years. The latest set of EBK amendments, which entered into force July 1, 2003, ordered Swiss banks to abandon anonymous numbered bank accounts, keep banking records ten years after the closing of an account, and refrain from actively assisting customers to evade taxes.

Nevertheless, widely used investment techniques still permit customers to hedge their investments against tax exposure. The EBK guidelines also increased the banks’ awareness of Personally Exposed Persons (PEPs), such as well-known foreign political figures. The guidelines are expected to deter corruption through the application of several risk assessment criteria (customer name, nationality, country of residence, and business activity). The EBK guidelines apply to domestic and foreign banks based in Switzerland and to Swiss banks’ subsidiaries abroad. The Swiss penal code explicitly recognizes money laundering as a criminal offense, as is membership in, or support of a criminal organization. The change in the law facilitates confiscation of illicitly acquired assets without having to establish an exact linkage between a given asset and a specific crime. Money laundering regulations extend to non-banking financial institutions and require reporting suspicious transactions. Switzerland has signed and ratified all of the 12 UN anti-terrorism conventions as of September 2003.

Foreign investment is not restricted by “cross-shareholding” or “stable shareholder” arrangements. There is generally little discrimination against foreign investors, the areas of chief complaint being the type of limitations cited under the section “right to private ownership and establishment.” Special measures available to Swiss firms to defend against hostile takeovers are covered under the above section as well.

There is not government effort to restrict foreign participation in industry standard- setting. The Swiss private sector generally does not support efforts to restrict foreign investment, participation, or control of domestic enterprises.

Political Violence

Switzerland has long been characterized by political and social stability, and there are no indications that this will change in the foreseeable future.

Corruption

Switzerland has an effective legal and policy framework to combat domestic corruption. Laws are enforced effectively. U.S. firms investing in Switzerland have not complained of corruption to the Embassy in recent years. Corruption is reportedly not pervasive in any area or sector of the Swiss economy. Switzerland maintains effective investigative and enforcement procedures to combat domestic corruption. The giving or accepting of bribes in Switzerland is subject to criminal and civil penalties, including imprisonment up to five years.

Switzerland signed the OECD Anti-Bribery Convention in 1997 and it entered into force in the country on May 1, 2000. In February 2001, Switzerland signed the Council of Europe’s Criminal Law Convention on Corruption and in December 2003 it signed the UN Convention against Corruption. In order to implement the Convention, the Parliament amended the Penal Code to make bribery of foreign public officials an offense (Title Nineteen “Bribery”, Articles). The amendments entered into force on May 1, 2000. In accordance with the revised 1997 recommendation, Parliament amended the legislation on direct taxes of the Confederation, cantons and townships so as to prohibit the tax deductibility of bribes. The amendment of the Tax Code became effective on January 1, 2001.

In 2003, the Swiss cabinet issued guidelines to combat corruption among government officials. Under the recommendations, gifts should generally be declined, but those worth less than SF 100 may be accepted. Staff members are urged not to accept anything that would “challenge their independence and capacity to act.” The guidelines also call for better internal control systems and include recommendations on how to protect whistle-blowers.

Switzerland ratified the Council of Europe’s Criminal Law Convention on Corruption on July 1, 2006. Switzerland’s penal code was amended so that foreign diplomatic staff and members of international organizations can be brought to court if they accept bribes.

On September 21, 2007, the Federal Council approved the 2003 UN Convention against Corruption. The lower chamber of parliament approved the draft bill on December 11, 2008 while the upper chamber has yet to approve it. Government experts believe that final approval will not result in significant changes since passive and active corruption of public servants is already considered a crime under the Swiss Criminal Code (Art. 322)

In June 2008, the Group of States against Corruption (GRECO, Council of Europe) welcomed Switzerland’s efforts. Switzerland is among the top ten European countries in effectiveness for fighting corruption. For its first evaluation of Switzerland, the GRECO expressed satisfaction at the 2000 and 2006 revisions to the criminal law on corruption. The implementation of the criminal responsibility of the person (2003) was well perceived, as was the prohibition on tax breaks on bribes (2001).

In December 2008, the government announced a proposed change of the Swiss Obligation Code to ensure a better protection for “whistle-blowers” against unfair dismissals by an employer.

In 2007, Transparency International (TI) Switzerland said Switzerland wasthe export nation most effective at preventing bribery in its companies. It ranked Switzerland ranked seventh globally with a score of 9.1 out of ten. TI noted that Switzerland had no transparency laws on political party financing. According to the organization’s anti-corruption report, Switzerland still did well when it came to preventing illegal political donations and in the fight against money laundering. But the country did less well when it came to “policy consequences of legal political donations”, achieving only an average score. Transparency International reports that the problem lies mainly with minor incidents of corruption, especially in the area of public procurement. While TI believes it is a positive sign that Switzerland had ratified in 2000 the OECD anti-bribery convention and has adapted its legislation, it notes that Swiss courts had convicted only one person since 2000 in connection with bribing a foreign public official. During 2005, Swiss official statistics reported a total of 11 convictions for bribery. There were nine corruption cases in 2006.

A number of federal administrative authorities are involved in combating bribery. The State Secretariat for Economic Affairs deals with issues relating to the OECD Convention, the Federal Office of Justice with those relating to the Council of Europe Convention, and the Department of Foreign Affairs with the UN Convention. The power to prosecute and judge corruption offences is shared between the cantons and the Confederation. For the Confederation, the competent authorities are the Office of the Attorney General, the Federal Criminal Court and the Federal Police (“Fedpol”). In the cantons, the relevant actors are the cantonal judicial authorities and the cantonal police forces.

A third of Swiss workers report that they come across illicit dealings during their working lives. Around 12 per cent of economic crime concerning Swiss companies involves corruption, according to government estimates. One study by financial analysts KPMG into economic crimes in Swiss companies put corruption in second place behind fraud, in the frequency of offenses committed. Former Suva workers have been caught up in a bribery scandal concerning the sale of property for tens of millions of francs below the market price. Seven people have been arrested. Since 2000, criminal stautes concerning corruption have been tightened. For example, bribes paid abroad are no longer tax deductible.

Corruption is generally regarded to have decreased in the public sector over time. Swiss civil servants who accept money or unwarranted benefits risk up to five years’ imprisonment. The upper-limit value of presents such as bottles of champagne and watches is a grey area that poses a problem because it varies according to department and canton. Transparency International believes a maximum sum valid at the federal level should be fixed. Some multinationals have assisted with the fight against corruption by setting up internal hotlines to enable staff to report problems anonymously.

After several visa abuses during the past few years in Swiss embassies abroad, a government audit highlighted 33 embassies and consulates with potential problems. The problematic cases identified occurred in Morocco, Turkey, Peru, Russia, Oman, Nigeria, Serbia, Macedonia and the Democratic Republic of Congo. The Swiss Federal Foreign Affairs Department also confirmed around 100 cases of visa fraud at the Swiss Embassy in Pakistan.

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Public Procurement

Switzerland is a signatory to the WTO Agreement on Government Procurement (GPA). On the cantonal and local levels, a 1995 law provides for nondiscriminatory access to government procurement.

According to the July 2002 revised ordinance on public procurement, all private or state-owned companies such as utilities, transportation, communications, defense, and construction that submit tenders for government procurement must make their bids public if the contract exceeds SFr. 250,000. Total public procurement outlays are estimated at approximately SFr. 31 billion, split between the federal government (19%), the cantons (38%) and local administrations (43%). In percentage terms, this represents about 25% of all public expenditures (or 8% of GDP.) Cantonal and communal governments carry out many of the public projects. Their procurement spending is two to three times that of the federal government.

In September 2004, the Swiss government initiated a series of informal consultations to amend the 1994 Swiss Federal Law on Public Procurements. This process, which is intended to simplify the many different cantonal tender procedures, is expected to be completed and enter into force in 2010. Contrary to cantonal and communal practice, federal authorities are not required to inform unsuccessful bidders of the tender accepted or the reasons for the choice. In general, quality and technical criteria are as important as price. Cantons and communes usually prefer local suppliers because they can recover part of their outlays through income taxes. Foreign firms may be required to guarantee technical support and after-sales service if they have no local office or representation. Access to public tenders by foreign bidders may be hampered by lack of transparency in the bidding conditions applied across the cantons.

Under the WTO Agreement on Government Procurement (GPA), Swiss cantons are allowed to implement the agreement independently from the federal government, which sometimes leads to disparities across cantons. Under the current Federal Law on Public Procurement, public tender procedures apply when the size of the contract exceeds SFr248,950, whereas WTO obligations set the tender threshold at SFr383,000.

Notices of Swiss government tenders are published in the Swiss Official Gazette of Commerce (www.shab-online.admin.ch) and on the on-line Swiss Public procurement website SIMAP.CH www.simap.ch (French, German, and Italian versions only). Tender documents can be obtained free from the gazette’s website. While there is no requirement to have a local agent to bid, it may be advantageous when equipment tenders include training, service or parts.

Conversion and Transfer Policies

There is freedom of transfer for investment income, royalties, and repatriation of capital. There are no Swiss government policies or laws, which would regulate or limit the inflow or outflow of capital. Foreign exchange markets are free, and access to foreign exchange is uncontrolled. Swiss foreign exchange markets are highly developed and efficient. A parallel system to repatriate capital or profits has not developed.

Expropriation and Compensation

Property rights are assured by the Swiss constitution. Within the framework of their constitutional powers, the federal and cantonal governments can nevertheless, through a legal process, expropriate or restrict property for reasons of public interest. In the event of expropriation or property restriction, full compensation must be made. An independent court, as required by the European Human Rights Convention, settles disputes. As a general rule, recourse to expropriation is taken only in cases involving major public construction projects, such as highways, railroads or airports. The Embassy is unaware of any major expropriations or restrictions in the recent past affecting US. investments.

Dispute Settlement

The Embassy is not aware of any significant investment disputes in recent years. Swiss legal provisions, which include the Code of Commercial Obligations and the 1994 revised bankruptcy law, provide extensive protection of secured interests in property.

Where American citizens are involved in disputes (with private individuals or business enterprises) and the controversy cannot be settled amicably, the normal recourse is to seek remedies provided by the law of the appropriate cantonal jurisdiction. Foreign lawyers may not act as “attorneys at law” unless they are admitted to a Swiss bar. There are, however, no restrictions on practicing as a “legal consultant.” A U.S. attorney who is not admitted to a Swiss bar may also join a Swiss law firm as an “of counsel” member. American diplomatic or consular officers may not act as attorney, agent, or representative in a fiduciary capacity in such matters. If legal action is to be undertaken in Switzerland, a local lawyer should be involved (either directly or via an American attorney). There are differences in the legal systems in Switzerland and America, and ignorance of those differences could jeopardize a case. For example, in the United States a lawyer can serve papers on another person directly, but in Switzerland, lawyers must first file a complaint with the court. The court then decides whether to serve or not. The Martindale-Hubbell Law Directory contains an extensive list of lawyers licensed to practice in Switzerland. The Embassy’s Consular Section, American Citizens’ Services, also maintains a list of local English-speaking attorneys. The phone number is (41-31) 357-7234 fax number is (41-31) 357-7280. Please specify the canton for which the list is required when calling.

The only methods for a non-Swiss court or lawyer to obtain testimony or to serve process in civil matters in Switzerland are through the Hague Convention on taking of Evidence Abroad in Civil or Commercial Matters, the Hague Convention on the Service Abroad of Judicial and Extra judicial Documents in Civil and Commercial Matters, and through a letter interrogatory. For information on this legal process, contact either the Embassy Bern Consular Section or the Office of Citizens Consular Services in the Department of State (202) 647-5226. Switzerland has been a member of the International Center for the Settlement of Investment Disputes (ICSID) from its inception in 1966.

The effects of bankruptcy on creditors’ rights are set out in articles 208 to 220 of the Swiss Federal Debt Prosecution and Bankruptcy Statute. Initiating bankruptcy proceedings results in all obligations of the debtor becoming due, with the exception of those secured by mortgages on real estate. The creditor can claim the amount of the debt and interest up until the date of the opening of bankruptcy proceedings, and the costs of enforcement (article 208 paragraph 1). Claims that do not have as their object a sum of money are converted into a monetary claim of corresponding value (article 211, paragraph 1). The order of distribution to the creditors is prescribed by article 219. Enforcement is handled by the canton with jurisdiction. Under the revised Code of Commercial Obligations now in Parliament, shareholders will have the right to sue board members or managers if they fail to publish adequate information of the financial situation of the company, or for any perceived undue benefits.

Business bankruptcies dropped from 4314 cases in 2007 to 4200 in 2008. However, in October 2008, reported bankruptcies reached 499, up 36% over the same period in 2007, due in part to the weakening economy. The main reasons for bankruptcies were reportedly illiquidity resulting from bad debts (78% of cases) or late payments (67%). Other causes included insufficient capital (57%), difficulties in obtaining a loan (55%), high salary costs (44%), reduced or canceled credit lines (44%), excessive financing costs (41%), and adverse economic developments (30%). The number of new company registrations in 2008 was about 3,000, a roughly 2% increase from 2007.

Bankruptcies of private individuals, which had been rising steadily for a decade, fell slightly from 6140 in 2007 to 6050 in 2008. However, the credit agency Credit Reform expects the rate to increase again in 2009 as a result of the economic slowdown.

All monetary judgments are made in Swiss Francs.

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Openness to Foreign Investment

The Swiss Federal Government adopts a relaxed attitude of benevolent noninterference towards foreign investment, allowing the 26 cantons to set major policy, and confining itself to creating and maintaining general conditions favorable to both Swiss and foreign investors. Such factors include economic and political stability, a transparent legal system, reliable and extensive infrastructure, and efficient capital markets. Many U.S. firms including Dow, Philip Morris, General Motors, Kraft, Google, Procter & Gamble, and Baxter base their European or regional headquarters in Switzerland, drawn to the country’s low corporate tax rates, exceptional infrastructure, and productive and multilingual work force.

Switzerland was ranked as the world’s most competitive economy according to the World Economic Forum’s Global Competitiveness Report for the first time in 2006, but fell back to second place behind the US in 2007 and 2008. The high ranking reflects the country’s sound institutional environment, excellent infrastructure, efficient markets and high levels of technological innovation. Switzerland has a developed infrastructure for scientific research; companies spend generously on R&D; intellectual property protection is strong; and the country’s public institutions are transparent and stable.

The Heritage Foundation, a public policy research institute that promotes free enterprise and limited government, said in January 2009 that Switzerland’s policies towards trade, business, investment and property rights had created the 9th-freest economy on the globe. Switzerland scored 79.4 out of 100 on the 2009 Index of Economic Freedom, down 0.1 points from the 2008 ranking. The report noted that Switzerland excelled in property rights and freedom from corruption, but that the government was becoming too large.

Many of Switzerland’s cantons make significant use of fiscal and other incentives to attract investment to their jurisdictions. Some of the more aggressive cantons have sometimes waived taxes for new firms for up to ten years. Individual income tax rates vary widely across the 26 cantons. Corporate taxes vary depending upon the many different tax incentives. Zurich, which is sometimes used as a reference point for corporate location tax calculations, has a rate of around 25%, which includes municipal, cantonal, and federal tax.

The major laws governing foreign investment in Switzerland are the Swiss Code of Obligations, the Lex Friedrich/Koller, the Securities Law, and the Cartel Law. There is no screening of foreign investment. There are few sectoral or geographic preferences or restrictions. Several exceptions are described below in the section on performance requirements and incentives.

Some former public monopolies retain their historical market dominance, despite privatization. Foreign investors can find it difficult to enter these markets, due to high entry costs and the relatively small size of the Swiss market.

Telecoms:

The 1998 Telecommunications Act brought liberalization and privatization to the Swiss telecommunications sector, opening the market to investment and competition from foreign firms. More than 50 Swiss and foreign companies now offer fixed line services. Three different operators — Swisscom, Sunrise (TeleDenmark), and Orange (France Telecom — share the mobile telephone market, with each company reportedly also holding a third-generation mobile telephony license (UMTS). Until September 2005, Southern Bell Corporation’s 9.5% stake in Sunrise’s parent company represented the only significant U.S. investment the Swiss telecommunications market. But in that month, US Liberty Global purchased 100% of the shares of Cablecom, a competitor of Swisscom. Stiff competition between the two operators led to a drop in fixed line rates. The incumbent state monopoly – Swisscom – has used the courts to block the Swiss government’s efforts to open the market to competition. However, in May 2006 the Federal Court successfully forced Swisscom, after years of legal wrangling, to drop its interconnection prices by 30% and pay SFr.35,000 in damages to Verizon. In July 2006, Swisscom also was ordered by the Communication Commission (ComCom) to pay back Sfr1 million to Cablecom for excessive interconnection fees on its fixed line network.

In March 2006, the parliamentamended the Telecom Act in order to force Swisscom to unbundle its local loop. The forced unbundling of Swisscom’s last mile will last four years, a period designed to provide time for other telecom providers to invest in their own local infrastructure. The reform does not extend to other technologies, such as Mobile and WiFi. The bill also requires that broadband access be offered to Swisscom competitors at cost-oriented prices over a period of six years, after which all operators are expected to provide their own broadband investment. Swisscom announced it would reduce fixed and mobile telephony prices by 5-10% in 2009.

In December 2007, ComCom accused Swisscom with levying excessive interconnection charges for the fixed line network between 2004 and 2006. Two competitors – Colt Telecom SA and Verizon Switzerland – complained that Swisscom’s charges were 15-20% too high. In October 2008, the Swiss Federal Communications Commission (ComCom) forced Swisscom to provide bitstream access on the last mile for four years following a previous parliamentary recommendation. Swisscom was also forced to reduce its monthly interconnection charge to competitors from SFR23.50 to SFr18. In March, Swisscom had refused to submit a price proposal to its competitors, because in its view it was not dominant in the market. This droveSunrise (a subsidiary of TeleDenmark – TDC) to submit an access application to ComCom, with a view to obtaining a decision in principle on the question of market dominance. ComCom came to the conclusion that Swisscom is market-dominant in relation to wholesale bitstream access. Swisscom has yet to announce whether it will appeal the ruling to the Federal Administrative Court.

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The first step is for the issuer to select bond counsel and the underwriter or financial advisor. The issuer and the solicitor work with these participants to structure the financing. Some basic questions need to be answered: (1) what is the purpose of the issue — to fund a capital project, to refund prior debt, or a combination of both? (2) what are the legal parameters involved — does the capital project serve a proper legal purpose, can the debt be refunded under the federal tax rules? (3) how should the bonds be sold — through negotiation with one underwriter or through a bidding procedure with multiple underwriters? (4) does credit enhancement make economic sense (that is, is the cost of the insurance or letter of credit less than the resulting debt service savings to the issuer)?

Once the structure is formulated, the issuer needs to select the paying agent or trustee and the credit enhancer, and all the participants begin to prepare the required documentation. The underwriter or financial advisor and the issuer prepare the disclosure document which is usually called the preliminary official statement. Bond counsel drafts the ordinance or resolution and other legal documents.

When the preliminary official statement is in proper form, it is distributed to potential purchasers. The marketing period usually lasts about one week. At the end of the marketing period, the issuer holds a public meeting at which time the bond sale is held.

If the issuer has chosen a negotiated offering with one underwriter, then the underwriter comes to the public meeting with a firm purchase proposal. If the issuer has chosen an offering with bids from multiple underwriters, then the financial advisor collects the bids on the day of the public meeting. The issuer then accepts the purchase proposal at the public meeting by adopting the ordinance or resolution prepared by bond counsel.

In recent years, issuers and their financial advisors have sometimes solicited bids from underwriters through the internet.

The purchase proposal contains the specific terms of the bond issue: principal amount of the bonds, interest rates, amortization schedule and prepayment provisions. Once the deal is “cut” at the bond sale, the participants then proceed toward the closing. If the issuer is a municipality or school district, bond counsel will prepare a package to be filed with the Pennsylvania Department of Community and Economic Development. The Department has 20 days to approve the bond issue. Usually the closing takes place about one month after the bond sale. Prior to the closing, the bond counsel will distribute for review drafts of various agreements, certificates and legal opinions.

At the closing, the participants execute the various closing documents. The underwriter wires the purchase price for the bonds to the paying agent. The paying agent, at the direction of the issuer, pays the costs of issuance and applies the balance to fund a construction fund or to refund the prior debt. After the closing, bond counsel distributes a complete set of the closing documents to each participant.

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Companies issue bonds to finance operations. Most companies can borrow from banks, but view direct borrowing from a bank as more restrictive and expensive than selling debt on the open market through a bond issue.

The costs involved in borrowing money directly from a bank are prohibitive to a number of companies. In the world of corporate finance, many chief financial officers (CFOs) view banks as lenders of last resort because of the restrictive debt covenants that banks place on direct corporate loans. Covenants are rules placed on debt that are designed to stabilize corporate performance and reduce the risk to which a bank is exposed when it gives a large loan to a company. In other words, restrictive covenants protect the bank’s interests; they’re written by securities lawyers and are based on what analysts have determined to be risks to that company’s performance.

Here are a few examples of the restrictive covenants faced by companies: they can’t issue any more debt until the bank loan is completely paid off; they can’t participate in any share offerings until the bank loan is paid off; they can’t acquire any companies until the bank loan is paid off, and so on. Relatively speaking, these are straightforward, unrestrictive covenants that may be placed on corporate borrowing. However, debt covenants are often much more convoluted and carefully tailored to fit the borrower’s business risks. Some of the more restrictive covenants may state that the interest rate on the debt increases substantially should the chief executive officer (CEO) quit, or should earnings per share drop in a given time period. Covenants are a way for banks to mitigate the risk of holding debt, but for borrowing companies they are seen as an increased risk.

Simply put, banks place greater restrictions on what a company can do with a loan and are more concerned about debt repayment than bondholders. Bond markets tend to be more forgiving than banks and are often seen as being easier to deal with. As a result, companies are more likely to finance operations by issuing bonds than by borrowing from a bank.

Read more: http://www.investopedia.com/ask/answers/05/reasonforcorporatebonds.asp#ixzz1mG19pg4T

Companies issue bonds to finance operations. Most companies can borrow from banks, but view direct borrowing from a bank as more restrictive and expensive than selling debt on the open market through a bond issue.

The costs involved in borrowing money directly from a bank are prohibitive to a number of companies. In the world of corporate finance, many chief financial officers (CFOs) view banks as lenders of last resort because of the restrictive debt covenants that banks place on direct corporate loans. Covenants are rules placed on debt that are designed to stabilize corporate performance and reduce the risk to which a bank is exposed when it gives a large loan to a company. In other words, restrictive covenants protect the bank’s interests; they’re written by securities lawyers and are based on what analysts have determined to be risks to that company’s performance.

Here are a few examples of the restrictive covenants faced by companies: they can’t issue any more debt until the bank loan is completely paid off; they can’t participate in any share offerings until the bank loan is paid off; they can’t acquire any companies until the bank loan is paid off, and so on. Relatively speaking, these are straightforward, unrestrictive covenants that may be placed on corporate borrowing. However, debt covenants are often much more convoluted and carefully tailored to fit the borrower’s business risks. Some of the more restrictive covenants may state that the interest rate on the debt increases substantially should the chief executive officer (CEO) quit, or should earnings per share drop in a given time period. Covenants are a way for banks to mitigate the risk of holding debt, but for borrowing companies they are seen as an increased risk.

Simply put, banks place greater restrictions on what a company can do with a loan and are more concerned about debt repayment than bondholders. Bond markets tend to be more forgiving than banks and are often seen as being easier to deal with. As a result, companies are more likely to finance operations by issuing bonds than by borrowing from a bank.

Read more: http://www.investopedia.com/ask/answers/05/reasonforcorporatebonds.asp#ixzz1mG19pg4T

If you are interested to issue bonds, please visit our speacial web page: http://www.my-swiss-company.com/bonds_issue/bonds.php

The Swiss bond market held up well during the financial crisis. The market was not closed to domestic or foreign borrowers in 2008 and 2009. The market for bonds denominated in Swiss francs (CHF) lived up to its reputation for stability.Why is the Swiss National Bank (SNB) interested in the CHF bond market? The SNB implements its monetary policy by steering the interest rate level on the money market (since 6 September, it has also been enforcing a minimum exchange rate of CHF 1.20 per euro). This headline interest rate –the three-month CHF LIBOR – is a benchmark rate for the interbank market, but it also performs a key function for the bond and swap markets. Trends on the bond market are thus significant as far as the monetary policy transfer mechanism is concerned. In addition, they supply valuable information for economic and monetary policy analysis,,. A second reason lies in the fact that the SNB acts as the bank of the State. It settles payments, issues money market debt register claims and bonds, holds securities in custody and executes money market and foreign exchange transactions on behalf of the federal government. Thirdly, the SNB has a direct interest in movements on this market in view of its substantial holdings of CHF bonds. Fourthly, CHF bonds are one of the key categories of securities the SNB allows as collateral for repo transactions. Last but not least, the domestic bond market can play an important role with regard to crisis-combating measures. For example, the SNB bought CHF bonds from private-sector borrowers during the most recent crisis in order to prevent acredit crunch.

Main characteristics of the CHF bond market

The Swiss bond market has three main characterizing features. Firstly, its growth rate is among the lowest internationally. The volume of outstanding bonds worldwide is rising steadily and sharply. Bond markets are showing especially strong momentum in some emerging economies such as China and India. The total capitalization of the Swiss market at the end of 2010 was over CHF 570 billion.

This equates to 115% of gross domestic product (GDP) and is thus in line with the average for bond markets in developed economies.Secondly, in contrast to many other developed economies, the market for non-public borrowers in Switzerland is much bigger than the public capital market. The volume of outstanding Confederation bonds relative to the overall economy has fallen continually over the past five years. This reflects the circumspect financial policies of the federal, cantonal and local authorities. Thirdly, foreign issuers account for a greater share of the market than their Swiss counterparts. Most other bond markets are dominated by domestic paper. The market capitalization of foreign borrowers has exceeded that of domestic issuers for years. Furthermore, the vast majority of CHF bonds are traded on the SIX Swiss Exchange, whereas most trading in other countries is conducted over the counter. Switzerland’s bond market also stands out thanks to the above-average credit ratings of its borrowers.

Materials are taken from the web site: http://www.six-swiss-exchange.com/

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The strength of the Swiss financial centre, its position as a world leader in cross-border private asset management and the associated high level of financing and placing power enjoyed by its banks, and the general attractiveness of Switzerland as a location make the SIX Swiss Exchange extremely appealing for both domestic and foreign companies. Foreign companies account for 25% of the companies listed on the SIX Swiss Exchange, a higher proportion than any other exchange in Europe apart from the London Stock Exchange (also 25%).

Public placement and listing on the SIX Swiss Exchange give a company access to an experienced, financially powerful group of international investors. With an average of ten IPOs per year in a positive market environment, transparency over transaction volumes and a manageable range of listed companies, every company on the SIX Swiss Exchange benefits from a high level of visibility and attention from investors, analysts and journalists. At the same time, investors in Switzerland have many years of experience of international sector-oriented investment strategies. Given Switzerland’s economic structure, the banking and insurance secotrs, the food sector, pharmaceuticals, biotech, medtech and cleantech, as well as the micro and nanotechnology sectors are particularly popular with investors.

In addition, the regulatory provisions of the SIX Swiss Exchange reflect market realities and thus simplify the capital increase process. Under Swiss legislation, the SIX Swiss Exchange has powers of self-regulation and is thus ideally equipped to combine high levels of investor protection with a regulatory environment that is reasonable from a company perspective.

The SIX Swiss Exchange is part of the SIX Group, which covers the entire value chain within Switzerland’s financial market and also operates internationally. Securities trading, associated processing of transactions, provision of financial information and payment transactions are all performed by a single organization. In addition to its broad product range, its fully integrated and completely automated trading, the clearing and settlement system is very strong. Orders are executed, cleared, paid for and confirmed at the click of a mouse. The SIX Swiss Exchange is the home exchange and market for shares in leading international companies such as Novartis, Nestlé, Roche, ABB and UBS. The indices provided by the SIX Swiss Exchange are therefore of global importance and highly regarded. The best-known index, the Swiss Market Index SMI®, comprises the 20 largest and most liquid stocks on the Swiss equity market.

For more infromation about our services, please proceed to our special page: http://www.my-swiss-company.com/bonds_issue/bonds.php

or if you need information on SIX, please visit: http://invest-in-switzerland.com/

Switzerland The Domiciliary Company

Domiciliary Companies are Stock Corporations that are both foreign-controlled and managed from abroad, have a registered office in Switzerland (i.e. at a lawyer’s premises) but have neither a physical presence nor staff in Switzerland. They must carry out most if not all of their business abroad and receive only foreign source income . The use of domiciliary companies can result in savings in corporate income tax levied on income and capital gains and net worth tax.

Switzerland The Auxiliary Company

An Auxiliary Company is essentially a Domiciliary Company which in addition may carry out a certain proportion of its business in Switzerland. Auxiliary Companies are possible in only seven cantons, and do not benefit at federal level. Treatment varies according to canton, but in most cases an auxiliary company may have Swiss offices and staff and be in receipt of Swiss income (which is taxed at normal rates). Most income though must be from a foreign source.

Switzerland The Service Company

Service Companies are Stock Corporations whose sole activity is the provision of technical, management, marketing, publicity, financial and administrative assistance to foreign companies which are part of a group of which the service company is a member. Service companies may not in general derive income from third parties (i.e. companies outside their corporate group). Service company status is obtained by way of an advance cantonal tax ruling (there is no benefit at federal level).

Switzerland The Mixed Company

Mixed Companies are Stock Corporations which have the characteristics of both domiciliary companies and holding companies but which do not qualify as either. There is no benefit at federal level, but at cantonal and municipal level there are corporate income tax benefits if the mixed company meets the following conditions:

the company is foreign controlled;
a minimum of 80% of its total income comes from foreign sources;
the company has close relationships to foreign entities.

Switzerland The Branch

Branch offices, whether of foreign companies, or of Swiss companies in other cantons, must be registered in the Commercial Registry of the canton in which they are located. The branch must have a nominated, Swiss-resident representative.

Branches need not publish their annual financial statements, but branches of foreign corporations constitute ‘permanent establishments’ from a tax point of view, and will therefore be taxed on local source income both at federal and at cantonal level as if they were resident corporations. There is no withholding tax on transfers of branch profits to its foreign parent.

If you are interested in frming the business entity in Switzerland, please proceed to: http://www.creation-entreprise-en-suisse.com/set_up_swiss_company/index.php

By bundling together a diverse portfolio of stocks and bonds, mutual funds provide customers with a relatively safe and professionally managed investment vehicle. Most companies offer mutual funds in a variety of investment types, from strictly bond funds to international stocks to tax-free investments in your state. Mutual fund companies also provide you the option of investing in a personal account, a 529 college savings plan, and a tax-free or tax-deferred IRA. However, not all mutual funds are managed properly, and some charge inordinately high fees. With more mutual funds being offered today than actual stocks, choosing the right mutual fund often requires more research than any other investment strategy.

Broker Commissions

Outside investments of a million dollars or more, mutual funds typically come with a sales charge. Often times mutual fund companies will only list return figures based on net asset value, and not the value after the sales load is applied. This load is generally about 5 to 6% of the total cost. Therefore even a healthy return of 8% in the first year is immediately cut down to nearly zero after inflation. While over the long term the effect of the load is negligible, some unscrupulous brokers will suggest the client sell the fund in order to gain a commission, constantly undercutting the total return.

Management Fees

Up to 2% of the total gain goes directly to management fees. Typically, users are willing to pay this price in order to have their portfolios managed by a professional. However, some companies will charge fees much higher than the industry standard. Other fund managers will trigger large sales that may result in a capital gains tax, even if the overall mutual fund is losing money to give the perception that the fund is profitable.
Before investing in a mutual fund, be sure to thoroughly examine the prospectus. Verify the sales charge on both front-end and back-end load funds, as well as the applicable management fees. A seemingly well performing fund may actually provide poor returns if these fees and charges are taken into account.