Financing for Thai start-ups
waiting at London's Alternative Investment Market (AIM)
By Jon Fernquest |
This Monday the Bangkok Post business section featured an article on an innovative new way to raise capital that is being pioneered by London's Alternative Investment Market (AIM).
Launching a successful business requires a business person to proactively seize a business opportunity while it's still hot.
Unfortunately, the money needed to finance a promising business may not be there when you need it.
Local capital markets in Southeast Asia may not have the money, knowledge, or willingness to finance some promising new businesses, leading to what is in essence, a lost business opportunity.
Many Chinese companies have gone all the way to Great Britain to get the needed financing for their new businesses. As today's article suggests:
"London certainly offers a bigger pool of capital [than regional markets]. If you want to access global funding, if you want to reach out abroad, AIM is a solid choice."
See photo on right of Pater Noster Square in London, home to the London Stock Exchange and AIM. The buildings housing the London Stock Exchange are on the right side of the photo.
Here is the article in full:
Listing in London
Startups from all over the world are being wooed by the AIM in London, with 'nomads' helping steer candidates to success. By Chiratas NivatpuminMonday May 12, 2008
For all practical purposes, Thai companies hoping to go public and raise funds from the equities market have only two real choices - list on the Stock Exchange of Thailand or its smaller stepchild, the Market for Alternative Investment.
The MAI, founded in 1999, is touted as a more accommodating choice for smaller firms unable to meet the more stringent listing criteria of the SET. But easier access comes at a price, in the form of lower liquidity.
But Chaiwat Kovavisarach, a banker with Avantgarde Capital, a boutique investment bank, believes there is another choice: London's Alternative Investment Market (AIM).
"AIM hasn't really made its presence known in Thailand yet. But the door is open, and I think there is real potential for small and medium-sized companies to list," he said.
AIM was founded as a sub-market to the London Stock Exchange in 1995 with the original aim of helping smaller companies access capital through more flexible regulations and listing criteria.
But thanks to its unique regulatory system, AIM in recent years has outpaced the LSE in terms of market listings, including a growing contingent of Asian companies. Avantgarde Capital recently hosted a conference in Bangkok to highlight the opportunities available from an AIM listing.
Perhaps the most important characteristic of AIM is that it is an exchange-regulated market, said Jane Zhu, Asia Pacific head for the LSE.
AIM does not impose capitalisation or share float requirements on new listings. Regulations are highly flexible, predicated on transparency and disclosure rather than absolute compliance.
Most significant is the fact that oversight is not made by a regulatory body, such as Thailand's Securities and Exchange Commission. Instead, AIM's regulatory model depends heavily on the use of a nominated adviser, or "nomad", to vet a company's performance, both prior to and after a listing.
"The nomad is responsible for due dilligence, and is the key to the success of AIM. A nomad acts as a gatekeeper, like a bodyguard and a babysitter," Ms Zhu explained. "Even after a listing, the nomad relationship is maintained. If a company does not have a nomad, it will be suspended."
Voon Keat Lai, a partner with the law firm Stephenson Harwood & Lo in Hong Kong, said the regulatory model of AIM offered considerable flexibility.
"The exchange doesn't vet listings. The SEC doesn't vet listings. Much depends on the interaction between the company and the nomad," he said. "The nomad doesn't raise funds. Instead, it works with the broker, the reporting accountants and the lawyers to get the listing done."
Mr Lai said the nomad concept helped regulatory oversight for the market.
"With 1,700 firms on AIM, it's difficult to oversee them all. So regulatory responsibilities have been effectively outsourced to the some 88 registered nomads. It actually results in better regulation," he said.
Aamir Quraishi, managing director of the nomad Libertas Capital in Dubai, said nomads were legally responsible for their supervised companies, and as such had a strong incentive to ensure that regulations were followed.
For Libertas, its reputational capital was on the line in its relationships with clients.
"When we approach clients, we only look for long-term relationships. If a customer wants to short-cut the process, we can only tell them to go elsewhere," Mr Quraishi said.
The listing process itself starts with the nomad, which is responsible for screening the company's operations, liaising with accountants and lawyers to conduct due dilligence and co-ordinating with brokers for the share placement process.
"A typical listing might take four to six months. It can go as quick as 10 to 12 weeks, but four to six months is more likely," Mr Quraishi said.
On the accounting side, Paul Williams, corporate finance manager for BDO Stoy Hayward in Hong Kong, said IFRS was the accounting standard for companies operating in the European Union.
But AIM companies can also use US GAAP or Canadian GAAP, depending on the circumstance and their operating base.
Mr Voon of Stephenson Harwood & Lo said potential listings were also vetted for financial stability and working capital.
"A listing candidate should have at least 12 months working capital, ideally 18 months. Very few firms going to the market fail [after listing], thanks to the working capital test," he said.
Experts agree that successful AIM listings also needed to consider investor demand.
"Investors don't necessarily want to see a brand-new start-up. More typical is a company with a three-year track record," said Mr Williams of BDO Stoy.
A solid management team, clear commitment to good corporate governance and a solid growth story were also common denominators for successful listings.
While listing sizes vary widely, Mr Williams said US$20 million was a "sweet spot".
Mr Lai agreed, adding that more often, companies were going to the market first with a small offering with plans to follow with a secondary issue.
"AIM is a good place for secondary listings. Two-thirds of the funds raised on AIM are secondary issues," he said.
Lower regulatory and listing costs was another key advantage for AIM. Mr Williams said a typical AIM listing paid 6% to 8% of the funds raised for the listing process, compared with around 10% for a Nasdaq listing.
"A major difference is that US regulatory environment, particularly with the Sarbanes-Oxley Act, imposes greater expenses for US-listed companies."
Post-listing, a company can expect to pay upwards of 50,000 per year to retain a nomad as the exchange requires.
Avantgarde's Mr Chaiwat said AIM offered a good opportunity for Thai companies to truly go global.
AIM itself is looking to expand in the region, both among potential listing candidates and institutional investors. China is the most well-represented on the exchange, with 67 listings, although over the past few years some Malaysian, Singaporean, Japanese and Vietnamese firms have also entered AIM.
Mr Lai said AIM's advantages over a comparable local listing was clear.
"London certainly offers a bigger pool of capital [than regional markets]. If you want to access global funding, if you want to reach out abroad, AIM is a solid choice," he said.
(Source: Bangkok Post, business, 12-05-08, Chiratas Nivatpumin, page B2, temp-link)
Vocabulary:
London's Alternative Investment Market (AIM) - a sub-market of the London Stock Exchange, allowing smaller companies to float shares with a more flexible regulatory system than is applicable to the main market (See Wikipedia)
Nominated Adviser (nomad) - the advisors and low-cost regulators of companies listed on AIM, provide continuous oversight and advice, can be held financially responsible if there is a problem (underwriter)
nomads - people who travel from place to place, rather than living in one place all the time (here the word has been borrowed as the name of AIM's regulatory agents or auditors)
a listing, a listing on a stock exchange - a company's stock meets the requirements for being traded on the stock exchange, which include meeting accounting accountign standards and making financial information available to the public
startups - new small companies
X pioneered by Y - Y was the first to do X
woo - try to encourage people to do something
candidates - people being considered for a position
proactive, proactively - planning, thinking, and acting ahead of time (to maximize success)
an opportunity - a situation that makes it possible to do something you want to do
seize an opportunity - take the opportunity when you get it (because it might not happen again)
a lost opportunity - an opportunity that was not taken and passed by
in essence X - X is the most important characeristic that provides an identity
steer candidates to success - guiding companies that are being considered for listing and helping them to succeed and get listed
For all practical purposes,... - in the real world, in practice, this is what happens (abstract theory may say otherwise)
go public - same as listing above
X a stepchild of Y - Y looks after X (but probably neglects it a little bit, like step-parents usually neglect step-children in preference to their own children)
stringent - strict rules, demanding and not flexible, with strict control
criteria - factors or conditions that you evaluate to make a decision or judgement
stringent listing criteria - very demanding and rigid conditions before a company can be listed on and traded on the stock exchange
lower liquidity - less buying and selling (less trading and therefore more difficult to buy and sell stock shares, have to pay a premium to some market maker)
made its presence known - let people know it exists, publicize its existence
the door is open - there is an opportunity, invited to apply
outpaced - run or move faster than others (See glossary)
a contingent - a group, a group representing a country or organisation (or here a whole region)
a growing contingent of Asian companies - a group of companies from Asia that is growing larger
exchange-regulated market - the rules of the stock exchange regulate the market
impose capitalisation or share float requirements on new listings -
X predicated on Y - X is only true, if Y is true
transparency - public visibility, public has access to important information
disclosure - giving people new information that they don't have
predicated on transparency and disclosure -
compliance - do what is expected in a law or agreement
oversight - ensuring that something works well (See glossary)
vet - screen, examine, investigate, checked carefully to make sure they are acceptable, often a preliminary step before a final choice (See glossary)
vetted for - checked for
vetted for financial stability and working capital - checked to see if financial stability and working capital was sufficient
due dilligence - exhaustive research on a transaction, income stream, client, or payor, that may involve credit checks, appraisals, lien searches, or on-site visits with clients, a thorough assessment and careful consideration of every aspect, covering all financial, technical, insurance and legal aspects, making sure no important facts have been omitted (See Wikipedia and Google Definitions)
acts as a gatekeeper - controlling entry into the exchange
outsourced to - hired as an outsider to do work
had a strong incentive to - a reward provided a strong reason for doing
capital - an investment, usually money invested in a business, but "human capital" usually means the educational and knowledge of country's people, an investment that a country has made in its people (See glossary)
reputational capital - the investment that a company makes in a good reputation, which is necessary for future sales, growth, and expansion of the company
reputation - to be remembered as being good or bad (See glossary on reputation)
reputational (adjective) - adjective form of reputation
capital on the line - may lose the capital if the investment doesn't succeed
a short-cut - a shorter and quicker way of getting to a place (for example, they took a short-cut to the road throught their neighbor's backyard)
a process - a series of actions taken to achieve a result (for example, business processes are the standard ways of doing various tasks in company)
short-cut the process - use a quicker way to do the process
screening - check for acceptability
screening the company's operations - check to the operations of the company to see if they are acceptable
liaising - when two organisations work together and keep each other informed about what what is happening in their organisations
share placement - when new stock shares of a company are made available for sale to invididuals or institutions
accounting standards - the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements, financial accounting information must be assembled and reported objectively, people who rely on this information have to be assured that the data is free from bias and inconsistency
GAAP - Generally Accepted Accounting Principles, used to name the accounting standards used in the US and Canada (See Wikipedia)
International Financial Reporting Standards (IFRS) - accounting standards used internationally, that might eventually replace current US GAAP standards (See Wikipedia)
US GAAP accounting standard - the accounting standards for the US (See Wikipedia)
depending on the circumstances - changing with the details of the situation
working capital - the money and goods in stock used to run the day to day operations of a business, money used to pay employees, produce and sell more goods
a track record - accomplishments demonstrating experience and expertise
a company with a three-year track record -
a commitment - a plan and promise to continue doing something in the future (no matter what happens) (See glossary)
a commitment to good corporate governance - is planning and promising to continue good corporate governance in the future
common denominators for successful listings -
the sweet spot - the best place to hit the ball on a golf club or tennis racket face that is (delivers the maximum mass behind the ball, the center of mass) (See Google Definitions)
Sarbanes-Oxley Act (SOx, Sarbox) - new US laws to strengthen corporate governance and accounting practices, passed in 2002 after scandals at several large companies led to their collapse and reduced confidence in US securities markets, these new laws make new company IPOS more difficult in the United States, so may put the US at a disadvantage compared to other countries such as the UK (See Wikipedia)
Post-listing - after listing the stock on a stock exchange
retain - find and hire a professional (for example, retain a lawyer, retain an accountant)
