Liquidity in AIM cos are as good as that in SME stocks in India

Our Bureau Updated - October 12, 2011 at 09:48 PM.

No currency risk for companies due to long-term investments

There is no restriction on free float for companies going in for listing on the London Stock Exchange (LSE) through the Alternative Investment Market (AIM) platform, according to Ernst & Young.

Liquidity

Addressing select businessmen at a session that showcased the advantages of listing on the AIM, Mr Mayank Rastogi, Partner, Ernst & Young, said, though there is no minimum criteria of 25 per cent public float, as stipulated by other exchanges, “we generally advice our clients to dilute from 10 to 25 per cent, as the case may be.”

Admitting liquidity in AIM-listed stocks is not as high as BSE Sensex or Nifty stocks, Mr Rastogi said, it is equivalent to most of the listed SME stocks in India.

Liquidity in the shares of larger AIM companies is, however, higher when compared with that of smaller ones, he added.

According to E&Y, the top 25 institutional investors own nearly 40 per cent of FTSE AIM 100 index, averaging 56 per cent of free float. In India, the top 25 institutions hold 16 per cent of BSE-Midcap companies, averaging 36 per cent of free float.

Speaking to Business Line , Mr Rastogi said: “There is no currency risk, as the investments generally are long-term in nature.”

AIM v GDR

Most companies, particularly in the power segment, on the LSE trade at a 40 per cent premium in market cap over the Indian companies, said Mr Nikhil Bahel, Managing Director of Religare Capital Markets Plc, which along E&Y is looking to work with Indian firms keen on raising equity capital from investors in offshore markets

When asked why companies should opt for AIM instead of Global Depository Receipts, he said while GDR is a derivative of underlying equity, AIM is a fresh floatation and that could help companies in global expansion.

According to E&Y, the broad range of active investors in AIM include long-only institutional funds, industry-specific funds, hedge funds, sovereign wealth funds, family offices, retail investors and private individuals. Blackrock, Invesco, Fidelity, Prudential Group, Lloyds Banking Group and Capital Group Companies are some of the active institutions.

Mr Bahel said that concentration of portfolios with only a few institutions or individuals “could be double-edged sword”. But he added that if the companies' intentions are genuine and if they have sound business models, it is unlikely that such investors would act against the companies concerned. Such investors have ‘enormous' patience to wait for companies to perform, he said.

To avoid concentration risk, companies can pick institutions of their choice, he added.

Currently, 27 Indian companies are listed on the LSE through AIM and have raised $1.06 billion.

Published on October 12, 2011 16:18