Exotic listing aim for AIM

The ease and flexibility of listing on the LSE’s AIM market has prompted a dramatic rise in foreign companies using offshore domiciles to list on the exchange.

According to global offshore law firm Walkers, more and more companies from outside the UK are listing on the small companies market, with many choosing to use Jersey, Guernsey and Isle of Man to do so.

Asian companies in particular have seen the benefits of listing on AIM, with 43 companies currently listed on the exchange, 25 added in 2006 alone.

Eleven Indian companies listed on AIM in 2006, Walkers said, raising more than £1bn. Seven came from offshore jurisdictions, up from only one in 2005.

“We have done ten offshore listings for Chinese companies in the last 18 months,” said Hiren Patel, a partner in Walkers’ Jersey office.

“The flexibility and clear path to an IPO are attractive to virtually any company.

“There are clear tax advantages, on top of the benefits of AIM listing, if the listing is done through an offshore jurisdiction such as Jersey or the BVI.”
Walkers’ Patel said the benefits to companies from an AIM floatation are two-fold.

“AIM offers a tremendous amount of liquidity to smaller companies, as well as access to institutional investors who often turn into mentors and partners,” he said.

“The exchange also has lower listing fees compared to others in the world.”

Often these companies come onto the radar of small-cap fund managers in the UK.
However, Dave Clark, manager of Resolution Asset Management’s UK Small Companies fund, warned that investors have to set the bar higher when assessing these foreign firms.

He said: “Over the past three to four years there have been a growing number of companies coming to AIM with no connection to the UK.

“They are coming from the US, Israel or emerging markets like Russia and China.

“The fact that they are increasingly looking to list via offshore domiciles like Jersey and Guernsey shows that UK small-cap managers are starting to question whether it really is their job to help the growth of a global small company.”

Clark said part of the problem of investing in such a firm was knowledge of the company and the market in which it operates.

“You often have directors come in and tell you about markets and products you know next to nothing about,” he said.

Clark said he has invested in one AIM-listed company from abroad, a US firm called Cosentino Signature Wines.

He said “We invested in a company at the end of 2005 as a California-based wine firm which operated solely in the US.

“We sold out a year later mainly because of size and liquidity issues rather than a problem with the company.

“Since then it has issued a profits warning and its stock price has plummeted from around 140p to 25p today.”

Aberdeen’s Bertie Thomson, who works with the group’s small-cap team in London, was another who was wary of investing in these foreign AIM-listed stocks.

“Many of these emerging market companies have come to AIM on the back of the big boom in commodity prices,” he said.

“The vast chunk of these stocks are oil and gas related, or base of precious metal companies.”

For Thomson, many of these firms have corporate governance issues and have cyclical earnings cycles.

He also felt investing in these firms was for the emerging market managers rather than UK small-companies investor.

“UK small-cap managers that have allowed these stocks into their portfolios run a higher risk, higher return standards than we do,” he said.

“Although some of these emerging market names do have UK managers and a credible business model we are still wary of holding these stocks.”

Despite the scepticism, Patel said the boom in foreign companies using offshore jurisdictions to list on AIM is set to continue.

He predicts that the new authorisation process enacted last month (FEB) by the Jersey Financial Services Commission for closed-ended funds that are or will be listed on designated stock exchanges will further boost AIM listings in this jurisdiction.

“The changes will streamline the authorisation process, which will benefit investors and entrepreneurs,” he said.



1 Mar