Try AIM to raise funds overseas

London Stock Exchange's Alternative Investment Market is suddenly becoming more attractive for smaller Indian companies hoping to raise funds overseas as it combines the benefits of a public quotation with a flexible regulatory approach.

It is a stock market in its own right, with its own rules and regulations, but it allows greater flexibility than not only the main market, but also the Sebi-administered BSE/NSE.

Hence the recent spate of Indian property funds on AIM - Raheja, Hiranandani and Unitech have already listed on AIM, and a large number of similar issues are likely in the near future.

Since AIM opened in 1995, more than 1,900 companies have been admitted and more than £17 billion has been raised. However, not a single Indian company was listed on AIM before 2005.

Great Eastern Energy Corporation was the first Indian company to list its GDRs on AIM in December 2005, but the Indian government had already spoilt the party by prohibiting unlisted Indian companies from issuing GDRs unless they did a simultaneous or prior listing in India.

Then came Noida Toll Bridge, a listed company, which listed its GDRs on AIM in March 2006. The market really caught the public imagination with the £250-million property fund, Trinity Capital, sponsored by two young NRIs.

This had everybody who had anything to do with real estate queuing up to float a property fund on AIM and since then, close to $2 billion has already been raised by such funds and another $2 billion or so is likely to be raised soon.

Listing on Indian bourses under the Sebi guidelines is extremely time consuming and onerous, especially for start-ups or new non-profit making companies. Small issues also do not get the market attention or the desired valuation.

The ADR/GDR listing on NYSE & NASDAQ have also lost their sheen mainly because of the regulatory issues, especially the Sarbanes Oxley compliance, as well as the high costs of listing on all these exchanges.

An AIM float, on the other hand, offers a flexible regulatory regime with access to a unique, globally respected market with a wide pool of capital.

An AIM listing gives the company an enhanced profile, increased status and credibility to access capital throughout Europe.

An AIM listing requires no minimum number of shares to be in public hands, no prior trading record, no minimum market capitalisation and no restrictions on the type of business or industry.

The admission document is also not required to be vetted by the Exchange, which possibly makes AIM a unique internationally accepted Exchange.

The only requirement is that all companies seeking listing must: a) produce an admission document that includes information about the company's directors, its promoters, business activities and financial position (which, although on similar lines, is much simpler than the Sebi Red Herring prospectus); b) appoint a nominated adviser, popularly known as a "Nomad" who is really the regulator for the AIM company.

After appointing the Nomad, admission to trading can be achieved in as little as two weeks (for Indian issues 8-12 weeks) with listing costs ranging between 6-7 per cent. An ADR, by contrast, could take anywhere between 6-8 months.

Indian listed companies can directly list their GDRs on AIM. A fund structure that has become very popular in India involves having a company incorporated on the Isle of Man (or an appropriate tax-friendly jurisdiction) listed on AIM, which invests money in the projects of the Indian promoter.

The Indian promoter/sponsor becomes the fund manager and may also have a stake in the AIM company. For unlisted companies, after the Indian government embargo on the GDR route, options exist of inverting the structure by having an overseas holding company, which would then list on AIM.

AIM is thus an easier and attractive option for Indian businesses to raise public funds but the India story on AIM is at risk of being killed by some shady issues managing to list taking advantage of the flexible regulatory control. It remains to be seen whether the AIM system is robust enough to preempt and prevent such abuse.

The author is Managing Partner, Naveen Goel Law Offices