AIM - The new El Dorado of Indian Corporates

India makes money in Europe

Rajesh Unnikrishnan

When the British capital and its feisty mayor 'Red' Ken Livingstone launched a 'Year of India' in a self-confessedly transparent bid in the first week of December to tempt ever more Indian companies to test the fast-flowing waters of the UK financial market, the cash-hungry Indian corporates had already been captured by the London fantasy.

India's vibrant corporates are now trying to snap up every available foreign asset in an insatiable quest for expansion across all the global markets. And now, the word AIM (Alternative Investment Market), the junior market of the London Stock Exchange (LSE), is making waves in Indian corporate circles.

Currently, in Mumbai and Delhi, merchant bankers and financial advisers are busy giving presentations to the corporate world stressing the lesser entry barrier advantages of the AIM and the experience of already listed Indian companies in London's junior market.

The results are visible. AIM is becoming the new El Dorado of Indian companies, especially unlisted companies which are in a hurry to raise funds with few disclosures in the ongoing economic boom. The market is witnessing a flurry of mid-cap, entry level and well established players listing for the first time in years.

AIM figures reveal that the Indian companies have mobilised more than $2 billion funds and another $4 billion deals scheduled in the months ahead.

Ibukun Adebayo, manager, business development, India and international, LSE, said yesterday:  "AIM is a specialised tool. Listing on AIM is most beneficial for early stage companies. London Stock Exchange has a main market that hosts companies with large market capitalisation and an extended track record, and AIM for the smaller and new players.  Listing on AIM would give the companies access to finance and an international profile that would support them in their growth plans,"

Flexible and money-wise

AIM supports new companies typically with a market capitalisation of $5 million up to $150 million. The regulatory systems are governed by the LSE itself and are flexible. The market now has a total of 1,600 listed companies, including over 250 from outside the UK.

The admission criteria for joining AIM are lax: no minimum size of company, no minimum proportion of shares in public hands, no trading record requirement, and no prior shareholder approval for the majority of transactions, no restrictions on the transferability of the company's shares and no requirement to be incorporated in the UK. Since its launch in 1995, over 2,500 companies have joined AIM, raising more than £34 billion in the process, both through initial public offerings (IPOs) and further capital raisings.

This capital has helped AIM-quoted companies of all kinds to fund their development and pursue their ambitions. Many companies have made the transition to the exchange's main market following their success and positive experience on AIM.

Mr Adebayo and his team are just back from India after their third business tour during the past one year to India's financial hubs -- Mumbai, Bangalore, Kolkata and Delhi.

"Indian corporates are increasingly favouring the AIM bourse for listing now. It is an entry point for new players to the main market. AIM is a nursery for LSE. We hope another 20 or more Indian companies will be listing in AIM, " Mr Adebayo said.

India Rising

 India's booming economy is putting more colours into Adebayo's dreams. The country is in a celebratory mood. It is the focus of world attention, with the Indian stock markets heading for new heights every day. The GDP growth in the July-September quarter rose to 9.2% on the strength of a vibrant manufacturing and service sector. Realty is worth its weight in gold and there is a surge in foreign institutional investment.

For London, the celebrations pick up from this point and move on. Says Lord Mayor David Brewer, who represents the global financial services industry based in London:  "The world landscape is changing fast and a growing and vibrant India is at the centre of that new world – which is why the City of London is keen to develop even stronger relations at all levels of business. India is key to the City's future and we expect India to take a leading role in world economic affairs in the coming years."

What makes AIM more attractive to Indian firms?

Vishesh C. Chandiok, partner and director, international business, at Grant Thornton, says,  "Compared to other leading bourses such as Nasdaq, the American Stock Exchange, the over-the-counter exchange and even the Bombay Stock Exchange, there are no minimum requirements with respect to initial equity required, market capitalisation and trading history in AIM."

He added that Grant Thornton itself was currently advising about 30 Indian companies for listing on the AIM. Of these 30, interestingly, 12-13 are real- estate/retail firms, six information technology (IT) and information technology enabled services (ITeS) firms and two pharma companies.

"On average, these companies are looking to raise about $30-40 million," Mr Chandiok said.

Over 30 Indian companies, including leading real estate groups such as Hiranandani, Unitech, the Piramals, Ansals, and the Embassy Group, have shown interest in listing on AIM and the list is growing.

Quick and Easy

It's often faster and easier to conduct a fund raising exercise in these exchanges compared with those in India. Nor do they have the stringent rules that apply in US exchanges following the Sarbanes-Oxley Act, said an official with Deutsche Bank, who advised Ishaan Capital, a newly AIM listed company of Mumbai based real estate firm the Reheja group.

Take the case of Eros International Plc, an international media and entertainment group that own and distribute Bollywood and English film content globally in a variety of formats.

Founded in 1977, with a film library of 1,300 titles, the group has a worldwide distribution network. More than 110 employees are based in UK, India, the US, United Arab Emirates, Australia and Fiji.

Eros typically acquires distribution rights to films under production and is then able to exploit these rights through cinemas, home entertainment, broadcast channels, new media and other modes of licensing.

Following the successful placing of 15,625,000 ordinary shares priced at £1.76p per share in AIM in early 2006, the company achieved a market capitalisation at admission of approximately £176 million.  While placing, the company offered 12,784,091 new ordinary shares to raise £22.5 million in gross proceeds.

Jyoti Deshpande, group chief operating officer and commercial director, Eros International Plc said, “We are pleased that the placing has been well received and welcome our new shareholders. Since inception, Eros has enjoyed phenomenal growth and we have a proven track record of organic expansion. We are now at a point in our history where the business is of sufficient scale to exploit the significant opportunities presented to us by the growing Indian entertainment sector globally. As a quoted company we will have the increased financial strength, visibility and currency to help us achieve our objectives. We are proud to be bringing Eros to the market and look forward to starting life as a public company.”

According to Ms Deshpande, for mid-sized, growing companies AIM is the best option.  She said, unlike the Nasdaq, there are no lengthy or complicated regulatory filing procedures in the AIM.   She said, “Through the fist listing we had mobilised £22.5 million pounds and after six months an additional £22.5 million. Now, 22% of our equity is free shares and our market cap is over £250 million.”

 "The most important attraction is that transparency and corporate governance standards are very low on the AIM market. It's ideal for an unlisted company which doesn't want to disclose much and doesn't believe in corporate governance," says Mr Raj Bhatt, chairman and MD of Elra Capital, a London based merchant banking firm. Elra is in the process of floating a new real estate and infrastructure fund in AIM

Many real estate firms prefer raising funds through these exchanges rather than from private equity funds because the latter do a very rigorous due diligence — much more than the exchange advisors do — and drive a hard bargain on valuations.

"Developers think they will get better valuations in these exchanges," Ketan Shah of ICICI Securities said.

Transparency is the Key

Indian companies started focussing on transparency and corporate governance only recently after the Indian market regulator, Securities and Exchange Board of India, introduced tough guidelines. Many Indian companies had a poor track record in management of funds and enhancing shareholder value.

Nearly 2,000 companies, which raised money from the market through initial public offerings (IPOs) in the 1992-1996 period, have already been delisted from the Bombay Stock Exchange. While many of them vanished after raising money, some were paper companies. Listing norms in India were tightened only five years ago.

AIM has a large, diverse and committed community of stakeholders, made up of various market participants. Specialist advisers are crucial to the market's success, and range from dedicated nominated advisors (Nomads) who play a central role in the life of an AIM company, through to lawyers, accountants and brokers.

Other important participants and stakeholders including investors, public relations (PR) and investor relations (IR) agencies who help companies join the market and make the most of their AIM quotation, as well as market committees and publishers, have focused on AIM and its companies.

At present, AIM is marketing new initiatives as part of an international campaign to attract increasing numbers of companies from around the world.

Now, companies in India can list and issue Retail Depositary Receipts (RDRs) in London, enabling them to access the largest pool of international liquidity in the world. Additionally, those in the technology sector will be able to list their RDRs on techMARKTM - market for innovative technology companies - and on techMARK mediscienceTM - the world's first market for healthcare companies.

Until now Indian Gross Depositary Receipts (GDRs) were traded only by professional investors and funds but RDRs can be traded by ordinary retail investors and institutions as well. Companies that choose AIM are expecting greater visibility and investor interest as many of them are considering Indian stock exchange listing later.

London's aggressive targeting of Indian companies, heralded by Livingstone last week, was based in great part on his hope that AIM would play a significant role in fulfilling London’s India dream.