Indian Companies Lose Appetite for AIM Listings Amidst Global Slowdown
The global slowdown in initial public offerings (IPOs) has significantly impacted Indian companies' interest in listing on the Alternative Investment Market (AIM) in London. Previously a popular choice for small- and mid-size companies, AIM has only seen four Indian companies list this year, compared to 21 in the previous year.
AIM's Appeal Diminishes
AIM offered companies an opportunity to raise capital without needing a listing in India. Many Indian companies established investment holdings in tax havens like the Cayman Islands specifically to access the London market. However, the worldwide decline in equity markets, including AIM, has dampened enthusiasm. The real estate sector, in particular, has experienced substantial value erosion, further deterring potential listings. Indian Film Company and Hirco, for example, are currently trading considerably lower than their issue prices, as reported by Grant Thornton's AIM Tracker in May 2008.
Competition and Liquidity Concerns
The FTSE's AIM All-Share Index has dropped over 25% since January, reflecting broader market trends. Experts suggest that AIM also faces increasing pressure from emerging junior markets in Asia, especially Singapore's Catalyst (formerly Sesdaq). One of AIM's key challenges is its lower liquidity. Its average monthly liquidity was just 6% in 2007 compared to 17% on Singapore's Catalyst. Despite the volatility, AIM has attracted retail investors due to fairly simple listing requirements and its leniency regarding a demonstrable track record or the requirement of maintaining a minimum market capitalization to list.
Expert Insights and Future Outlook
"There are some large investors who take positions on AIM such as hedge funds and pension funds, but since liquidity has been low, their interest has weaned away. For the first half of this year, there have hardly been any companies tapping AIM. But as global markets revive, the condition will improve. Some of the issues have been deferred too," says Amit Khandelwal, partner at Ernst & Young. The underperformance of some real estate companies on the London Stock Exchange's (LSE) junior market is also attributed to insufficient brokerage research on certain stocks.
Harish H V, partner at Grant Thornton, added, "Markets had corrected after January, but companies were demanding a premium over current valuations, which was not possible. But now they have come to terms. We are in talks with some 20 companies in sectors such as power, infrastructure and pharma."
As of June 30, 2008, 25 India-focused companies were listed on AIM, boasting a combined market capitalization exceeding $7 billion.