India may have lost its sheen on the London Stock Exchange’s AIM (alternative investment market), an alternative market for small companies. Between April 2005 and January 2007, 13 companies that were either Indian or India-focused listed on AIM; six of these now trade below their issue price, with the drop varying from 2% to 49%. Of the 13, 10 firms are focused on the real-estate business.
Ramesh Ahuja, the head of SBI Capital, investment banking arm of the State Bank of India, says, “The companies listed on AIM do not seem to have delivered on the promises made at the time of listing.”
He is also not sure why these companies had to seek an AIM listing, given “the robust conditions in the Indian primary and secondary markets”.
The performance of these companies appears to have had an immediate impact on other companies that were planning to list on the exchange.
A London-based lawyer, who advises Indian firms that list on overseas exchanges, told Mint on condition of anonymity that at least six companies, which had expressed their interest in the smaller exchange, have now backed out.
“The enthusiasm is fizzling out,” he says, adding that last year, when AIM was the flavour of the season with Indian firms, numbers like 150 (Indian companies wanting to list on AIM) were being bandied about.
Not everyone is convinced. Kripa Radhakrishnan, head of business development at Collin Stewart, a company managing issues on AIM, points out that while some companies have not done well on AIM, some others have, and seen a more than 100% rise in the process. “It is early days yet for Indian companies on AIM and I do see a number of companies, especially from sectors such as media, infrastructure and real estate, making issues on AIM,” he adds.
AIM is popular with small companies, especially those from developing countries, because of its pragmatic approach to regulations and accounting.
The cost of compliance with the US’ generally-accepted accounting principles is estimated at $2 million. It costs just around half that to comply with AIM’s requirements.
For investors, the exchange provides an inexpensive route to diversify their portfolios and invest in emerging economies.