OPPORTUNITY

FOR
INDIAN
COMPANIES - LISTING ON AIMLONDONS ALTERNATIVE MARKET
- Rajesh Sivaswamy
Senior Partner
rajesh@ksandk.com

KING STUBB & KASIVA

CAPITAL MARKETS PRACTICE

King Stubb & Kasiva - Capital Markets Practice

With India emerging as a success story, foreign investors are looking for opportunities
to invest in Indian firms. Many of these small companies , which were earlier finding it
difficult to raise funds abroad, are now riding the trend of demands for equity shares from
Indian firms in the global market to access cheap capital. There are various options now
available for Indian companies to raise funds overseas. This article focuses on the
opportunities that the AIM, the alternative market of the London Stock Exchange has
thrown up to Indian companies.
PRELUDE
AIM, the alternative market of the London Stock Exchange, is the worlds leading market
for smaller, growing companies. The AIM has positioned itself as a market for small
companies since its launch in 1995. Today over 2,000 companies have chosen the AIM
and raised funds in excess of 20bn. Currently over 1,300 companies are traded on AIM
with a market capitalisation of over 47bn. The largest sector represented on AIM by
market capitalisation is natural resources with 216 companies with a capitalisation in
excess of 14bn.
RATIONALE FOR AN AIM LISTING
So why choose the AIM when there are umpteen options available to Indian companies in
terms of the NYSE, Nasdaq, etc. The reasons interalia are to be sought in the founding
principle of the AIM which has been built on simplicity and a flexible regulatory
environment and has been specifically designed for the needs of smaller companies.
Besides, an AIM listing offers a globally respected market and an easy access to a wide
pool of capital, enhanced profiling besides giving the company status and credibility. It
may be noted that many companies listed in the AIM are internationally traded
companies of repute. Another factor has been the average size of listing the AIM has an
average size of $70 million as against $1.22 billion at Nasdaq, $5.86 billion at NYSE,
$500 million at National Stock Exchange (NSE), $120 million at BSE and $990 million
at LSE.
Another factor that has invoked the interest of Indian companies has been the positioning
of AIM in terms of creating a regulatory environment. AIM has been positioned to cater
to companies from all sectors and from all parts of the world and aims to provide an
environment sufficient to maintain investor confidence but not so stringent from a
regulatory perspective such as to preclude less established companies from joining its
ranks. It may be noted that the Financial Services Authority [securities regulator in the
UK] nor the London Stock Exchange [LSE] is directly involved in overseeing the
activities and suitability for admission of AIM companies. The process of overseeing
suitability for admission of AIM has been entrusted to a nominated advisor more
commonly referred to as a nomad. It is not uncommon for a nomad to also act as the
AIM companys financial adviser and broker.
PROCESS FOR AN AIM LISTING

King Stubb & Kasiva - Capital Markets Practice

The process of an AIM listing is simple, short and flexible. The AIM does not stipulate
the minimum criteria in relation to company size, trading record or number of shares to
be in public hands. All companies on the look out for a AIM listing need a nominated
advisor or a nomad from an approved register who is responsible for the LSE. It is the
responsibility of the nomad to ensure that all applicants are suitable to Admission to the
AIM and are ready to be admitted to the public market. Further, there is no requirement
of a London office or resident director thus making the process cost effective. However,
the nomad may insist on an appropriate mix of executive and non executive directors on
the board of the company to ensure corporate governance.
ADMISSION PROCESS
CHOOSING A NOMAD
The choice of Nomad is central to the process of an AIM listing. Each AIM company
must have a Nomad at all times both before and after admission. NOMADs are carefully
chosen by the London Stock Exchange and at the moment there are 72 of them - all
highly reputable brokerage or corporate finance houses. Every company must have a
broker and so the question often raised is whether it is better to have a broking house
which can act as a broker as well as a NOMAD or have two houses acting for the
company as broker and NOMAD. In particular, a broker will play an important role in
finding prospective investors for the companys shares, preparing and accompanying the
company on any road shows to promote its shares to investors, trading in the secondary
market, providing research on the company. As outlined earlier it is not uncommon for a
nomad to also act as the AIM companys financial adviser and broker.
RUN UP TO AIM LISTING ASSESMENT BY THE NOMAD
In the run up to admission, the Nomad will assess whether the company is appropriate for
the market. This process involves a due diligence process which the nomad carries out.
The nomad may also require the companys lawyers to carry out a due diligence.
Companies must in general produce an admission document that includes information
about the companys directors, their promoters, business activities and financial position.
If the companys business involves complexities in terms of technicalities, the nomad
may require a report by an independent or a competent person. Thereafter the Nomad
will give ongoing advice and guidance on the AIM rules.
Where a fund raising is undertaken at the time of application, the admission document
will also be used for that purpose and the fund raising is customarily done as an
institutional placing to avoid any need to prepare a public offer prospectus which would
need approval by the UK regulatory authority. There are certain pre-admission filings and
generally the process takes around 3 months to admission. Once shares are admitted to
AIM, trading will commence and the AIM companys share price will be visible across
the Exchanges information network of 90,000 terminals worldwide.
PROSPECTUS AND VERIFICATION

King Stubb & Kasiva - Capital Markets Practice

The prospectus is the key document and is required for an AIM listing and requires
information about the company to be set out in the prospectus to comply with the AIM
Rules. Broadly, the prospectus contains the following information:
company facts;
risk factors;
experts report;
accountants report; and
statutory information.
It may be noted that the directors are personally liable for the contents in the prospectus
and are liable for any misleading or false information.
FAST-TRACK ROUTE
Companies who have already been admitted to major markets listed below for at least 18
months to come to AIM. This fast-track route is available for existing listings on the
following stock exchanges:
Australian Stock Exchange
Deutsche Brse
Euronet
Johannesburg Stock Exchange
NASDAQ
New York Stock Exchange
Stockholmbrsen
Swiss Exchange
Toronto Stock Exchange
UK Official List (as issued by the UK Listing Authority).
These companies need not produce an admission document but simply need to make a
detailed preadmission announcement. Existing published information can generally be
relied upon although the latest annual audited accounts may not be more than nine
months out of date.
Admission to AIM using the fast-track route does not, however, give the ability to raise
funds at the time through a public offer as that would involve the publication and
regulatory approval of a prospectus. It does, however, allow prior or subsequent
institutional placings which can also take place without the costs of a public offering. The
fast-track route takes between four to six weeks.
ONGOING OBLIGATIONS
AIM companies are required to disclose details of their financial performance through
scheduled interim and full year results announcements. In addition, the company will be
required to make disclosures on an ongoing basis about other developments that might
have an impact on the future performance of the company and/or its share price. In most
cases, AIM companies are not, however, required to produce further documentation or to
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King Stubb & Kasiva - Capital Markets Practice

obtain shareholder approval when effecting acquisitions and disposals thus enabling the
company to expand or change direction quickly and cost-effectively. Board members and
other employees will, of course, be subject in any event to the disciplines of having
shares traded publicly and must be prepared for closer scrutiny of the company and its
performance and of key management decisions and actions. Under the AIM rules during
closed periods, prior to announcements of results and other information, dealings in the
securities of AIM company by directors and relevant employees are prohibited.
OTHERS ADVISERS
Other advisers involved in the listing process include:
LAWYER
SCOPE OF ENGAGEMENT

Conduct legal due diligence on the company

Advise on necessary corporate restructuring
Advise on drafting of the Admission Document
Negotiate terms of placing or introduction agreement
Prepare verification notes
Prepare board minutes

INDEPENDENT REPORTING ACCOUNTANTS

Preparing a long-form report and short-form report on the company, the

former being a private document which assists the Nomad and other advisers in
assessment of the companys admission to AIM and the latter being a report on
the companys financial record for inclusion in the AIM admission document.
Reporting on the companys working capital requirements.
Reporting to the directors and the Nomad on the adequacy of the companys
financial systems and controls.

PUBLIC RELATIONS ADVISERS

Arranging press coverage on the company in advance of listing and co-ordinating

publicity on the day of and after admission to trading on AIM.

ISSUES
Although an AIM listing is fairly straightforward and all the necessary steps are generally
within the control of the company and its advisers there are, however, certain issues that
should be addressed and resolved early in the process.
1. Working Capital. For a company that is following the normal application
process, its directors must be able to state in the admission document that the
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King Stubb & Kasiva - Capital Markets Practice

working capital available is sufficient for at least the next 12 months from
admission. The reporting accountants are usually required by the Nomad to
produce a working capital report in support of these statements.
2. Lock-in Requirement. Where a companys main business activity has not been
independent and earning revenues for at least two years, all the companys
directors, any shareholders who hold more than 10 per cent of the companys
shares and employees holding more than 0.5% must agree not to dispose of any of
their interests in the securities for one year from the date of admission.
3. Financial Statements. Financial statements prepared in accordance with any
other standards must be reconciled with UK or US GAAP or International
Accounting Standards prior to admission.
4. Verification Process. The admission document or announcement (in the case of
the fast-track route) will usually be subject to a rigorous verification or due
diligence process. Depending on the nature of the disclosure in the admission
document and in the companys public record, verification can be a lengthy and
time-consuming exercise and its scope and timing should be agreed to fairly early
in the process.
5. Settlement of AIM Securities. Securities to be listed on AIM must be eligible for
electronic settlement. Settlement is normally through CREST. In the UK, shares
of AIM listed companies are traded on an electronic exchange called CREST. The
operator of CREST (CRESTCO) does this through matching CREST
electronic messages, without transfer of physical share certificates (i.e., in a dematerialised form) by an adjustment in the share register by the Companys UK
registrar, Capita Registrars (Capita) and a payment by the buyer to the seller
through CRESTCO and the relevant brokers. The seller of shares instructs his/her
UK broker to sell shares through CREST and receives the sale price (less
commission), and similarly a buyer of shares instructs his/her UK broker to buy
shares and pays the relevant price to that broker.
6. Costs Typical expenses for an AIM listing are somewhat less than an IPO in the
US. Nomad and broking fees range from 3% to 5%. Accounting fees costs
Anything from 20,000 - 500,000 depending on size of company, and legal fees
commonly range from $35,000 to $100,000 for Nomads counsel and from
$35,000 to $100,000 for company counsel.
A WORD OF ADVICE TO INDIAN COMPANIES
Listing on the AIM to many an Indian corporate can be a Herculean task. Indian
companies although well managed are replete with inadequate corporate governance
issues. Lack of proper audits and lost or incomplete paperwork is a very common factor
among Indian companies.

King Stubb & Kasiva - Capital Markets Practice

Whilst preparing for an AIM listing one has to set out a great amount of time. No matter
how many directors you may have, it would require substantial amount of work to put
together documentation that satisfies the nomad and his advisors. A company needs a
project or two to make it look good from an investor perspective. An acquisition, joint
venture or a major contract is just one of the many fillips that your company may need to
look attractive and capture attention.
Having a investor who can underwrite the issue is a major advantage. The next step is to
organize your documentation in place. This process involves putting together copies of
all the agreements, references, licences, accounts, and corporate documents, including the
boards identity checks. Although in terms of corporate governance issues, the AIM may
not as strict as many of its counterparts it will still require from a practical perspective
independent non-executive directors.
The next step is putting together the team comprising of the nomad, broker, lawyer and
accountant. It will also be necessary to hire a second tier of advisors in terms of hiring PR
consultants. Once the team is in place the next effort is in terms of applying for admission
for the AIM listing. This is an exhaustive document and requires considerable efforts in
terms of detailing that Indian corporates are often not used to. These processes once
completed will entail listing of the company on the AIM.

This article is not legal advice. All person or entities reading this article might take
legal advice before taking any business/ commercial decision. In case, you require
any assistance in India, please write to us at info@ksandk.com or at the following
address:
King, Stubb & Kasiva,
Advocates & Attorneys,
E-66, 2nd Floor, Kalkaji
New Delhi, India 110019
Tel: +91 11 41032969
+91 11 41318190
+91 11 41318191
Fax: +91 11 41329569
2006 King Stubb & Kasiva