Going Public on AIM

1. What is AIM

AIM (Alternative Investment Market) was set up by London Stock Exchange on June 19,1995 serving for small and newly built growth companies. It is the first second market of Europe after US Nasdaq. It is the subsidiary of London Stock Exchange but has the relative independence, which is quite different from Japan, Singapore. The trading on AIM is through alternative trading service under the mechanisms of broker and competitive quotation, allowing one or more broker to quote price for a certain stock in one day. AIM has independent management team, regulations, and trading rules. AIM does not stipulate any requirements except accounting report. Listing investigation is loosest. Listing guarantee is by the Nomads (not vetted by the LSE) emphasizing on the function of Nomads and the self-discipline of listing companies. The major functions of AIM are ask for the timely information publication of companies and regulate the risks. AIM has been designed specially to the professional or experienced investors and opened to any companies in any countries. Ordinary share, preferred share, and corporate bond can all list on. The companies on AIM can list for the second.

2. Requirements for AIM

1) A nominated Nomad and broker required at all times

2) Public company or the same kind established according to the laws of its own country

3) Accounting items conforming to US GAAP or IFRS

4) 2 years profit records in the main trading. If no trading record, directors and employees should agree that any rights and interests he owned on the securities of company can not be sold in a year.

3. Elements for success

“355 companies traded on AIM in 2004, which set a new high since 1995. Over 130 new companies joined in the first quarter of 2005 and reached 60 in March. It is estimated that over 450 will have the first listing on AIM.”

1) No strict limits on the capital strength, company scale, trading years, trading records, proportion of shares in public hands and individual hands.

2) No limit on shareholders, even the individual single-venture enterprise can also list and raise money on the market.

3) The stock circulates entirely, which is helpful for the withdrawal and the arbitrage of initiator and individual shareholders.

4) No capital gains tax (20% in China)

5) Admission documents are not vetted directly by the Exchange. The Nomad prepares the admission documents and register in LSE The company can trade on the market when there is no objection to it in ten days after the announcement.

6) The regulatory system is: the company is regulated by the Nomad, the Nomad is regulated by the Exchange.

7) The company is allowed to list first, then raise the money when its stock has a good performance.

8) No limits for the times and the volume of capital raising.

9) No need to have a direction and stand in line for the application.

10) No shareholder approval for the increasing cost with convenient process. The Exchange have no charge for it.

11) The company having been on AIM for 2 years is allowed to enjoy the “fast channel” when rises to the main board.

12) Have broad sectors (32 sectors) and high potentials for trading and investing.

13) The company on AIM can list for the second time.

14) High proportion of institutional investors, perfect broker mechanism, and stable price

15) The failure rate of AIM is only over 3%.

16) 15 kinds of main currency including US dollar, Hong Kong dollar can be selected for listing and trading on AIM

17) Different accounting rules can be accepted. The company on the American market must obey US GAAP.

18) The conditional directors and employees of listed company are allowed to raid in the locked-up period for mitigating the serious personal difficulties

19) Conditional listed companies are allowed to offer in batches regularly. LSE can approve a batch each time and allow them to list in batches.

4. Differences between AIM and other capital markets

There are 3 kinds of typical operation patterns in the international Growth Enterprise Market (GEM). One is NASDAQ an independent electronic exchange system which is a new trading market different from the existing securities market. Second is the second market under the existing Exchange equal to Hong Kong GEM. Third is British AIM with a pattern of independent new market. The details are as following:

1) The form of organization. NASDAQ is an independent electronic trading market which has an independent trading system, trading rules, and regulation organization with the most independence, so its control ability for risk is obviously better than second market and British AIM.

British AIM and Hong Kong Second Market are the subsidiaries of the existing exchanges that are London Stock Exchange and the Stock Exchange of Hong Kong. Comparing with Hong Kong Second Market, British AIM has a stronger independence, although they use the same existing trading system of the Exchange. The obvious differences with the Hong Kong Second Market are the independent systems of listing, regulatory, information publication and risk warning. So British AIM has stronger abilities in the independence of organization and the control of risk.

2) The system of issuing and trading. The differences are: NASDAQ emphasizes on the self-discipline of the main market. It is directly regulated by US Securities and Exchange Commission, and has a strict limit to the listing companies and Nomads. It has the most perfect trading system. Although British AIM has an independent team specially for the administration of market, it emphasizes on the regulation after listing. It has the loosest standard for listing, so its pre-controlling to the risk of market is inferior to NASDAQ. Hong Kong Second Market follows the experience of NASDAQ in the details of trading system, but its self depends on the Stock Exchange of Hong Kong without an independent regulatory organization, so it has no independence in the administration and is influenced by the Stock Exchange of Hong Kong

3) Service object. The aim of these three markets are all for small and medium growing high-tech enterprises, but NASADAQ has a longer developing history, listed companies include not only some famous international large companies like Microsoft and Netscape, but also some unfamiliar small companies even the companies in debt. However, high-tech is still the sector with the most developing potentials and the most companies in NASDAQ. British AIM is late than NASDAQ and set up for small or newly-built growth companies , so the companies by value is inferior to NASDAQ.

5. The extract of the speech

I will emphasize on London AIM. I will take about its success and my opinion to Chinese market.

I feel that AIM is a very successful market up to now. Why? There are some data. AIM was a GEM completely in 1995. The British government said that your exchange was so successful but you still couldn’t provide a good capital raising channel for the small and medium enterprises. So we set up this AIM according to the requirement of government. The reason we call it an alternative investment market not the high-tech market or other market is that we want it to be a market for the earlier stage enterprises. We just celebrated our ninth year. 1,500 companies have listed on AIM in 9 years including 120 international companies. It is meaningful. The presents should be very familiar with the capital market. You can have a comparison with the other Exchanges of Asia to see how many can beyond 1,500. I think there is few. I want to restate that only AIM have had so many listed companies. And it is very interesting that the purpose we set up this market is to serving for the domestic enterprises, but now more and more international enterprises favor it and increase very fast, 97% higher than last year. I’m also glad to see that a Chinese company called China Wonder listed on AIM on Sep.30. At present, 97 companies have moved to the main market from AIM, quite a number of companies have had M&A activities, and 971 companies still left including 85 international companies. In fact, many companies have had M&A activities during the listing, so the failure rate is only 3.75%. It is quite low for only tens companies. We will talk about its reason of success later. Now, AIM by value is near to 50 billion. The market is quite large with broad sectors, including not only high-tech information industry, but also traditional industries in mining, retail, and even gambling. We also have over 80 subsectors. The AIM index in the past 12 months has risen over 92%, near to 100%. The newly listed companies were 211 from January to August of this year, including 144 initial offering. Some listed companies have made the structure but not raised the money that is to say not to do the new capital raising. Up to now, AIM has raised 23.5 billion for these earlier stage companies. About half are the initial offering, half are the refinancing. 

Why is AIM so successful? First, it is very flexible in listing, fitting for the small and medium enterprises. If you want to see the rules of AIM, I have one book with only 43 clauses and over 30 pages. If you see the rules listing on the main market, there are 3,000 pages, so thick a book. That is one difference. Some main points are: No 3 years trading records required, that is not only the profits but also 3 years trading records. No scale limit. Most companies on AIM are about 20 million to 30 million by average value, but there are also companies with only over 200 thousand and companies with 700 million to 800 million even companies near 1 billion by US$. No matter small or large can all list on AIM. No sector limit. Any sector can list on. No minimum amount of shares required to be in public hands, which is required in the main market. I think it is especially important to the small and medium enterprises, because 25% shares in public hands is a certain difficult to them. Companies listing on our AIM or GEM are not the second class always. If you have a normal operation, and haven’t violated any rules in 2 years, you can move to the main market through a fast channel.

Second is the system of Nomads and brokers. General speaking is that LSE supervises these 78 traders, and Nomads undertake all responsibilities. The Nomad should be very clear about this company and have a close relationship with it even in several years. Different from the main market, many Nomads of AIM are not large-sized companies like Merrill Lynch and Goldman Sachs but small and medium companies which are only engaged in one sector such as you do Bio-pharmacy, I do IT or mining, very professional.

A vivid analogy is like that one half of Nomad is the bodyguard, another half is the babysitter. The Nomad has the functions of bodyguard and babysitter. The Nomad should have a strict investigation to all information of this company, because it uses its own credit to guarantee the listing of this company. The Nomad does a filing of ten days with us on how this company lists on AIM. That is to submit a listing report, if no objection, this company can start to trade on the market after ten days. If there are some problems, the Nomad should undertake the responsibilities. Another difference is that the Nomad of the main market has finished his duties when you listed on the market, but the Nomad of AIM is required at all times. If no Nomad or the Nomad refuses to go on with you, we have to suspend your trading. This Nomad is not only your bodyguard but also your babysitter. When he thinks that you are a healthy child, he will take you to the market, when you become naughty and make mistakes, he will teach you, when you are ill, he thinks you can grow up, he will give you medicine and injection, so he is your babysitter. When you move to the main market, he will say goodbye to you.

In addition, sometimes the Nomad can be also the broker. The company can have a choice whether if it does concurrently or not. The advantage of having a fixed broker is that these brokers and Nomads all serve specially for the small and medium enterprises. They have a cheap charge but provide some professional services fitting for the small and medium enterprises. Simon.Chthi our largest Nomad, has done over 120 companies. He has 6 analysts special for these companies. He will send all companies 2 specialized reports every year no matter they are big or small, a notes every day. Even a market point, he will email to all 1,500 investors so as to make all small and medium enterprises get the look after in his group.

Some small and medium enterprises going to the overseas market feel that they are like a small fish jumping into a big pond, no concern. It is quite different in AIM, which specializes in the service to the small and medium enterprises. It has its own advantages, which made the capital raising of small and medium enterprises simple and convenient. Not only the listing rule is so thin, but also the listing documents of enterprises are only about 30 to 50 pages, so simple a listing report. Because of the simple process, the charge for it is very low. I have said just now that Nomads and brokers are required at all times, so the company can avoid many troubles.

You maybe very surprised at our very low charge, which we think is the special preference to the small and medium enterprises. We have no charge for greenshoe. So you can see that half of financing on AIM are the initial offering, another half are the greenshoe. The procedure is very simple.

Fourth, It is very essential and important to have broad sectors. The reason Why LoyalMark of Germany was collapsed at last is that it had only made a sector of High tech in 1999, which was very hot at that time, but when the bubble economy of high tech shattered, the whole market was broke down. AIM is very broad with 32 sectors, including high tech about 40%, and others like mining which also has a big risk, media, retail and the most popular and fashionable foot club of UK ( not the Manchester United, League 1, League 2 of course ), which also need the capital raising, need the behavior of enterprises, so can make the capital raising through the market.

Another I mentioned a moment ago is that it has a very convenient procedure of greenshoe, just 2-3 pages, no approval of shareholders. If you go on the main market, you have to get the approval of shareholders’ general meeting on greenshoe, new shares issue and allotment. So it is advantageous for the small and medium enterprises to operate according to the requirements of enterprises. And the Exchange has no charge.

The sixth and the seventh I think are both quite important. We make a market every year, which must succeed and become the critical math, I think AIM has reached the state of critical math, a process from the quantitative change to the qualitative change. That is to say it has had a successful development. A stock market has two parts, one is the enterprises with the financing aspiration, the other is the investors. Both of them are very important for the success of a enterprise. This structure is very rational.

The reason why AIM can have so large an institutional investor is that the government has a very good preference. There is a capital gains tax in UK, but if you invest in AIM or such kind of fund, this tax of 20% can be exempt. 20% is very large, how much can you gains from stocks? So it attracted many funds to invest this market. And because your fund can only invest in this market, you have to stay there no matter the market is good or bad, which has a good function in stabilizing the market.

Finally I will talk about the interaction relation of overseas market and Chinese market according to the requirement of meeting. Lawyer Chen of Shenzhen Stock Exchange said just now that Chinese Small and Medium Enterprise Market had a good beginning, which is very important and a good start to the continuous development of China. I also knew that two years ago over half of Chinese GDP hadn’t been created by the state-own enterprises but by the small and medium enterprises. AIM has spent 10 years in this long way. 2 or 3 years among is also in half dead, but I think it has a good prospect.

Small and Medium Enterprises Market should have a lower limit, and fit for the small and medium enterprises. According to AIM, I feel that the system of Nomads is very good, and it is very important to have broad sectors. Rational investors especially the institutional investors are very necessary in stabilizing the market and achieving the success. I know China has a considerable developing space no matter in the main market or in the small and medium markets.

6. Companies listed on AIM

(1)

ChinaWonder is the first Chinese company listed on AIM in September 2004. It is a small company with only RMB 30 million. Although it didn’t list directly, it has broken the situation that Chinese small and medium enterprises take trial nearby such as Hong Kong, Singapore. ChinaWonder came to London, the world financial center, based on the European market, and stepped into the international capital and fund market. From 2004 to now, all of 4 large-sized companies and 2 small companies listed on the main market and AIM have had good performances.

(2)

ON Sep.5,2005, Shanxi Jiuzhou Technology Co. Ltd signed a formal agreement with an International Capital Limited for the share issues and the flotation on AIM.

This International Capital Limited has been engaged in the Sino-British economic and trade exchange and the financial investment for a long period.

Listing on AIM is not only for entering the international securities market, but also for promoting the development of enterprise according to the international rules of market so as to be more competitive in the international financial, capital and products market. More over. Following the road of specialization, grouplization, and internationalization, realize the general strategic goal of ”Domestic forefront in 5 years, international famous in 10 years” and repay the shareholders with the good achievements. According to the usual practice, it will list on AIM in the beginning of 2006. 

(3)

April 5,2005 15:27 Securities Times 

Listed companies on AIM include all sorts. It is said that 3 companies engaged in the spray solution for improving the sex function of male, the explore of treasures in the sunken wreck and the plan for prospecting the oil in the Sudan control area of rebel army has also listed on AIM recently although they hadn’t made profits. And the adventurers looked them as the God and are expecting to get a surprisingly high repay.

AIM has ever self-propagated that it is the world most successful high growth market, and its performance in recent several months is truly like what they said. 335 new companies listed on AIM successfully in 2004, which doubled than last year. Over 100 companies are from outside of UK, including 5 Chinese companies. The total value of LSE at the end of last year reached US$60.9 billion, far more beyond its competitor Tokyo Small Market with US$30 billion. The similar markets in Germany and Vancouver were not bad at the beginning, but closed or merged with other market at last. So far, the enthusiasm of investors on AIM hasn’t dropped off. In March, 50 new companies including the spray solution company mentioned above listed on AIM which set the monthly record of AIM in 10 years since the establishment.

In 10 years, AIM has changed from a small branch under LSE favored by the risky investors only to a market presenting splendid sight. At present, half of the capital is from the institutional investors, great many of small companies can think of AIM when they need to raise money. In 2001, AIM suffered the same setback as other markets, but now people are worrying that AIM is too welcomed to move towards the destruction. Market requirements for AIM are very loose. No trading record required, no minimum value limited, Admission documents guaranteed by the Nomads who vetted by the Exchange. In 10 years, only a few companies and Nomads were imposed fine for disobeying the rules, only 3% listed companies went bankrupt.

Some people still worry that when large quantities of companies come swarming, AIM will be same as all markets, which is the a dangerous signal. Especially in the last year, there are large quantities of mining and petroleum exploring companies listing on AIM, the value of these two industries occupied 1/3 of the total market, some companies among have no identified right of exploration and no income, they will possibly be very success or not. 

White Nile Company is the biggest dispute recently. This company was set up by a former cricket player this year. Its market value has surpassed 20 million pounds in several days after the listing. Soon, it announced that it had obtained 60% rights and interests of an oil field in the civil war area of Sudan. But TOTAL of France said that it had owned these rights and interests several dozens years ago, therefore the trading of White Nile Company was suspended and changed the Nomad.

The investor team on AIM is still expanding although the experts said that only the extremely experienced investors could step in this market. Now, half are the institutional investors, Merrill Lynch and Goldman Sachs also applied to be the Nomads last year. Even though worries are ubiquitous. David an administrator of a large fund said that too much capital on AIM may take bubbles to the price, another problem is that some companies without certain business may dress themselves up and list on the market. (Huang Gesi)