Business Daily from THE HINDU group of publications
Friday, Feb 16, 2007
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Business Daily from THE HINDU group of publications Friday, Feb 16, 2007 ePaper |
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Markets
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Interview D. Murali
For starters, AIM is a subsidiary of the London Stock Exchange (LSE), set up in June 1995. Its objective was to provide a platform to mid-market companies to list on an exchange wherein they could attract investor interest. "The main list or the `official list' of the LSE comprised companies with a large market capitalisation (usually a £1 billion plus) and hence wasn't attractive for mid-cap emerging market companies. With a view to provide liquidity to such companies, the AIM market was conceptualised," explains Mr Chandra. Here are his answers to a few more questions. Why is AIM turning to be popular? In order to make it an attractive and viable exchange (unlike India's OTCEI experiment), several differentiators were provided to the AIM. The regulatory and compliance requirements were relatively light as compared to its peers. As a consequence, over the past three years, the number of IPOs on the AIM has exceeded other popular markets like the NASDAQ. In fact, increasingly American companies are targeting the AIM market rather than listing domestically. A large part of this is due to the high compliance costs, with issues like Sarbanes - Oxley, deterring companies from listing there. The concept of having a `Nominated Advisor' vet the company's filings and on-going reporting requirements has further reduced the compliance costs for companies. By actively encouraging emerging market companies to list, the exchange drew the attention of large funds (such as Fidelity, CDS & Co, Schroders), which were interested in investing in such assets. The exchange also managed to secure some tax benefits for investors investing in non-UK companies. This prompted more international companies to list and over a period of time, AIM has become a preferred destination for emerging market companies. AIM today has a very well diversified sectoral base with companies in financial services, metals and mining, oil and gas finding maximum representation. AIM has also got a well diversified mix of emerging market companies from countries like Australia, Russia, India and Philippines, besides a large proportion of UK-based companies. What are the positives for Indian companies going the AIM way? The Indian affair with the AIM can be traced to a few basic advantages. The first and most significant advantage of the AIM lies in its investor mix. Almost 60 per cent of the investors on the market are long-term investors willing to invest in long gestation projects. This is very different from the Indian market, which is a `quarter on quarter' market - you are as good as your last quarter. This finds favour with several sectors like real estate, infrastructure, construction, natural resources etc. Companies in such sectors would find it challenging to list in the domestic markets and sustain their valuations - thus the preference for AIM. Issues like Ishaan Real Estate, Hirco, Noida Toll Bridge, Great Eastern Energy, Indiabulls Real Estate have managed to attract significant investor interest at the AIM. The other advantage offered by the AIM is its liquidity. Unlike exchanges such as Luxembourg, there are significant trading volumes on the AIM and this makes it attractive for investors and companies alike. This coupled with easier disclosure and reporting requirements makes AIM a very compelling proposition. On regulatory roadblocks. There are a few hurdles one has to take into cognisance. The regulatory requirements in India necessitate a company to be listed in India before tapping any international exchange. In my view, this is a restrictive regulation and something, which needs a relook. Companies, whether listed or unlisted, should be allowed to access capital from wherever it suits them best - which may not necessarily be an Indian stock exchange. With daily volumes in the range of $10-13 billion, the Indian stock exchanges have adequate depth and need not get worried about a flight of capital to other markets. Moreover, the regulation is not impeding unlisted companies from tapping overseas markets but merely forcing them to exploit creative structures. Any other challenges? A significant challenge for Indian companies lies in positioning themselves at the AIM. As with any international listing, it is imperative that prospective companies distinguish themselves from their peers by presenting their strengths in the global market and highlighting the `India angle' as an add-on benefit. Lastly, companies need to realise that raising money from the AIM involves a listing - most Indian companies are completely under-prepared for the rigor and depth of the information requirements and disclosures. They are well advised to buttress their business plans and internal reporting systems before embarking on the listing. Your outlook for the current year, as regards AIM. AIM has certainly scored over other exchanges like Singapore, Dubai and Luxembourg. The next 12 months are likely to witness at least £2-3 billion being raised by Indian companies on this market. With a steady supply of good quality stock hitting the AIM and with continued investor interest, AIM is likely to be the market of choice for several Indian companies in the coming years.
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