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Kate Watson

London's secondary bourse is tailored for young companies

BRITAIN'S ALTERNATIVE Investment Market (AIM), the secondary bourse, is the latest beneficiary of mainland companies' thirst for investment capital.

A record number of nine Chinese enterprises listed on AIM last year, raising a combined total of more than GBP25 million ($360 million). In total, 14 companies from China are now quoted on AIM, with a combined market capitalisation exceeding GBP218 million.

Specifically tailored to growing businesses, AIM combines the benefits of a public quotation with a flexible regulatory approach. Giving new companies access to the market at an earlier stage of their development allows them to experience life as a public company.

Many of the mainland companies listed on AIM are involved in mineral exploration, new materials, and medical or biotechnology. Among those listed are: China Shoto, a power supply system design and manufacturing company; gold exploratory company China Goldmines; and South China Resources, a mining development company.

Mainland firms that want to list on AIM are often privately owned and have enjoyed strong growth but have a short history. This lack of trading history counts them out of listing in Hong Kong and other markets that require a minimum three-year trading record.

There are some other crucial differences in listing requirements for AIM compared with other boards. In Hong Kong, all listing applicants have to be approved by the stock exchange and the Securities and Futures Commission. AIM has effectively passed the vetting and due diligence processes to qualified sponsors. Each company applying to AIM must appoint a nominated adviser (nomad). The company or partnership (often a corporate finance house) with an interest in becoming a nomad must be approved by the London Stock Exchange.

'Everything falls on the shoulders of the nomad. There are no credibility or operating requirements, and no minimum capital requirements for AIM. But the nomad has to establish the fact that the company planning to list has a clear business plan and that its business is sustainable,' said Jack Chow, partner, assurance services, KPMG in Hong Kong.

AIM has other advantages. It puts the weight of the vetting process, a lengthy exercise before listing, on the nomad. And with no restrictions on the IPO share distribution, the volume of capital raised from institutional investors has the potential to be higher than that raised on a listing through Hong Kong's Growth Enterprise Market (GEM), which is subject to the minimum public allocation of 25 per cent.

Listing on AIM means dealing with more professional and sophisticated investors because they are largely institutional rather than retail.

For mainland companies looking for capital, therefore, the future liquidity of the shares is the priority.

AIM's advantage is that it offers a company the potential for additional investor capital and more certainty in the listing process.

'The number of mainland companies listed on AIM is less than 20 but it is a growing trend and many others have started to study the listing requirements. The London Stock Exchange is also very active in promoting AIM to mainland companies,' Mr Chow said.

Frederick Wong, chief financial officer of CIG Yangtze Ports, which listed on GEM last September, said he would have considered AIM had Hong Kong not been chosen as the market in which to list.

'AIM is up and coming and there are a number of China-based businesses already listed on it. With the nomad and subject to the investors being lined up, the entire process can be done in a month or two,' he said.

LONDON STOCK EXCHANGE REGISTRATION RULES

Main board

Minimum 25% shares in public hands

Normally three-year trading record required

Prior shareholder approval required for substantial acquisitions and disposals

Pre-vetting of admission documents by the UK Listing Authority

Sponsors needed for certain transactions

Minimum market capitalisation

Alternative Investment Market

No minimum shares to be in public hands

No trading record requirement

No prior shareholder approval for transactions

Admission documents not pre-vetted by Exchange nor by the UK Listing Authority in most circumstances. The UKLA will only vet an AIM admission document where it is also a prospectus under the Prospectus Directive

Nominated adviser required at all times

No minimum market capitalisation



Capital-hungry Chinese firms home in on AIM