ADGM’s package of SPVs gives businesses risk protection in the way
music icon maximised album royalties, says STA Law Firm chief
A financial practice used by music icon David Bowie to maximise album royalties can make Abu Dhabi Global Market a safe haven for Middle East companies to minimise risk, a legal expert says.
In the US in 1997, to protect his income from his songs, Bowie packaged 287 of his copyrights and recordings into a security known as a special purpose vehicle (SPV) that issued 10-year debt securities against them.
The US$55 million “Bowie Bonds” as they were known gave a higher interest rate than the yield on 10-year US Treasury bonds, and STA Law Firm says the package of SPVs now available at ADGM can similarly give major protection to companies basing themselves at the UAE capital’s financial centre.
“ADGM has stepped into the forefront in this area with their SPV regime, offering a dynamic and extensive scheme catering to numerous industry sectors and a range of uses,” said Sunil Thacker, Senior Partner at STA.
“Those setting up business in the market can use SPVs as a separate legal entity to isolate the parent company from hazards such as high risk financing, for instance the purchase of an aircraft, asset transfers and other high stakes projects.”
Paving the way for the modern version of SPVs, the success of the ‘Bowie Bonds’ opened up a whole new avenue of financing for entertainers by securitizing future royalty income.
“This was the first major securitization of intellectual property rights, and issuing the bonds enabled Bowie to raise a large amount of money without requiring him to divest ownership of those IP rights,” said Thacker.
“Companies opting for company formation at ADGM today can utilize SPVs for a wide range of beneficial uses, from securitizing loans to risk sharing with investors or joint venture partners, and this will underline its status as a safe haven in the region.”