Kari Lautjärvi, What Is the Hot Topic in the Finnish Finance Markets?

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D&I Quarterly Q3/2015

Posted on

30 Jun

2015

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Dittmar & Indrenius > Insight > Kari Lautjärvi, What Is the Hot Topic in the Finnish Finance Markets?
Partner Kari Lautjärvi co-heads the Corporate Advisory, Compliance & CSR team at Dittmar & Indrenius. In addition to his advisory and finance work, he is an active spokesperson for pro bono activities in the Finnish legal market. He also recently defended his doctoral thesis on Mezzanine Finance Instruments.
Q: Kari, you have taken an active interest in pro bono work, tell us more about that.My interest for pro bono work woke up in the 1980s when I was studying at Harvard Law School. At that time pro bono work was already an essential part of the activities in American Bar Association and of major law firms in the United States. Later on, when I became the President of the Finnish Bar Association, I advocated the implementation of pro bono activities in the Association and in Finnish law firms.

A great deal of pro bono activities support the maintaining and developing the rule of law.

Pro bono work fits very well in the business of law firms, since one important aspect of legal practice is to maintain and develop the rule of law, and a great deal of pro bono activities support this purpose. A good example is Crisis Management Initiative, one of Dittmar & Indrenius’ key pro bono clients, whose purpose is to prevent and resolve conflicts and support sustainable peace around the world.

Pro bono activities are an essential part of Dittmar & Indrenius ́ corporate culture and an important element in the professional and personal development of our lawyers.

Q: You defended your doctoral thesis on Mezzanine Finance Instruments at the University of Helsinki this spring. Tell us about the theme of your thesis.

The key theme is the corporate management’s responsibilities towards the creditors in context of the Finnish company law. As to the financial instruments themselves, my focus is on their factual nature and content rather than their pure legal form. Albeit typically structured as debt instruments, mezzanine instruments are often more akin to equity by virtue of their characteristics.

The implementation of the IFRS in Finland has emphasised substance-based evaluation in defining the difference between equity and debt in company accounts. However, from the perspectives of the Finnish company, accounting and tax law, the legal character and status of equity and debt instruments may differ or conflict with one another. Mezzanine finance instruments are a form of hybrid capital. Companies issue mezzanine instruments primarily for the purposes of achieving tax benefits, improving the company ́s solvency and credit ratios as well as facilitating the company ́s capital funding or decreasing capital expenditure. Mezzanine instruments may contribute to the improvement of risk management for companies and their investors as well as increased profits for the investors. They also provide an alternative financing method for companies, their shareholders and other investors by mitigating their conflicting interests.

In my thesis I analyse various types of mezzanine instruments and the structure of the applicable Finnish legal rules. The thesis is published as a book “Välipääomarahoitusinstrumentit” by Talentum.

Q: What are the current hot topics in the Finnish finance markets?

It is a general development in the financial markets in Finland that corporate bonds, mezzanine instruments and other market-based financial instruments are replacing traditional bank financing. A good example of this is the recent acquisition of the Finnish forestry company Kotkamills from OpenGate Capital where we advised the acquirer, MB Funds.

An interesting element of the acquisition was the combination of equity, mezzanine and high-yield bond financing into a single financing package. Although the use of high yield bonds governed by Finnish law as an alternative to bank financing has been relatively rare, case Kotkamills showed that diversity of funding sources and flexibility in creating financing solutions will lead to more efficient outcomes and can bring substantial benefits in capital structure optimising.

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