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 KAZAKHSTAN International Business Magazine №3, 2007
 Heading for London, Heading for Capital! Alternative Investments Market
Heading for London, Heading for Capital! Alternative Investments Market
By Yulia Tikhonova, Project Manager, Corporate Financing Department, City Investment Bank*
How to attract long-term capital to develop a business? One of the best ways is to sell shares on the open market using an international stock exchange. Many Russian and Kazakhstan companies prefer the LSE, the London Stock Exchange, for this purpose. Going public gives an enterprise a lot of new opportunities, though it also imposes a variety of extra obligations connected with ensuring transparency and accounting for the interests of third-party investors. Therefore, coming to the stock market is a serious decision for business owners regardless of scale and direction. Let’s have a look at the requirements a company has to meet to become publicly traded and the steps it has to take while preparing for a listing on a stock exchange.
Is There Need for Publicity?
 Apart from its Main Market, the LSE also includes Alternative Investments Market, or AIM, created specifically to assist small and fast developing companies to access investment resources. Over 2,000 enterprises are listed on AIM today. They represent various economic sectors and regions of the world, including issuers from the CIS. Its popularity may be explained by two key factors. The first is simplified regulation, which is especially convenient at the early stages of business development. Secondly, this market belongs to one of the world’s main stock exchanges, which representsthe largest pool of capital available anywhere worldwide. By placing their stock on AIM, companies can attract long-term investments not only on the day they enter the market but also long afterwards.
However, there are other reasons for issuers to enter the open market. Selling stock to a wide range of investors increases liquidity. This makes it possible for existing holders to sell their shares without difficulty if they wish. Once it has gone public, a company will receive an unbiased market evaluation of its capitalisation. The issuer will further find it easier to make takeovers using shares with proven price quotations as the means of payment. Moreover, the issuer will be able to encourage employee commitment by making share shames more attractive which can act as an incentive for employees’ long-term motivation.
Public status has a positive effect on the company’s image, because journalists and investment analysts watch public companies with greater interest. With regard to business partners and clients, the reliability of an enterprise that is in compliance with all AIM rules will be an important plus.
Small and Promising
Unlike the main LSE trading space with its strict requirements, AIM suits companies that are young but have good prospects. We can quote some facts to prove the flexibility of its regulations. This sector does not have limitations on the minimal amount of shares in the free purchase and sale, whereas for the Main Market these limitations are 25% and 3 years respectively. In many cases, it is possible to dispense with submitting the documents to the UK Listing Authority, the UKLA. Compliance will be checked by an issuer-hired supporting consultant, the so-called ‘nominated advisor’ (‘nomad’). A nomad is a company consisting of corporate financing professionals authorized by the Stock Exchange to work as nomads. The UKLA will come in at the stage of registering the share issuance project. Moreover, AIM does not set a lower limit for market capitalization; therefore, this space is open to small enterprises.
The Alternative Investments Market today quotes shares of various kinds of companies, from small ventures to those already well established and planning future development. This sector was initially designed for UK-based issuers, yet its coming onto the international area elicited great interest from foreign market players. An enterprise’s securities can have access to the market regardless of the location and sphere of activity of the enterprise. The main condition is to comply with all AIM requirements.
It should be mentioned that recently AIM has witnessed continued growth in the total amount of operations with securities. The increase of liquidity is partly due to introduction of a stock exchange index, the FTSE AIM. The main reason, however, is the arrival of a large number of new issuers, among them companies from Russia, Kazakhstan and other CIS countries, as well as the constant demand for shares from foreign investors. Some investors are working exclusively with shares marketed on the AIM, and this is one more reason for the fast and successful development of the sector.
On Being Transparent
Is management ready to work according to AIM standards and to look after third-party shareholders’ interests? This question has to be answered long before preparing the documents to access AIM.
Public share marketing means periodic and fast-reacting disclosure of information, and this entails extra expenses. Some of the data to be disclosed concerns information that private companies are reluctant to reveal. The investing community will require detailed reporting on financial and operational results, on decisions taken or planned. Investors value transparent and clear business, therefore, not only positive but also negative substantive news has to be announced. The market evaluation of a business as reflected in the share quotes will depend on the key indicators as well as on many factors beyond the control of management, e.g. the macroeconomic situation and prevailing stock market tendencies. In other words, stock placement on the exchange involves dependency on market uncertainties.
Nonetheless, after comparing all the pros and cons, many companies make the decision to go public. The first step is to ensure compliance with a range of criteria for publicly quoted companies.
Issuer’s Instructions
AIM regulations are based on the EC Prospectus Directive, or PD. In 2004 certain changes were introduced in this document, however the flexibility of normative requirements, which is so important for small, developing companies, remained unchanged. The amendments introduced are only applicable when there is an open subscription for shares, a special price placement for shareholders, or deals for a sum higher than the taxable minimum. In other cases, there is no need to make a PD-compliant share issue prospectus. The stock exchange uses a simplified version of the rules, the so-called AIM-PD.
What does the issuer have to do? First of all, a nominated advisor (nomad) and a broker must be appointed. The former, as we already have mentioned, will check the final documents. He will also decide whether or not the company is eligible to be listed on AIM. The nomad will explain the rules of this market to the Board of Directors and ensure their awareness of their responsibilities and upcoming obligations. Finally, it is the directors who will be responsible for the accuracy of all submitted data. Once the sales have started, the nomad should ensure that information is disclosed as required and provide consulting on this matter. It is often the case that the nomad is the broker. As broker he has a leading role in organizing sales and purchase of the shares, as well as in the information made available to investors. Enterprises use the broker’s services not only during the placement but also after commencement of sales.
A public company may not limit the free marketing of its shares. It has to be a registered Public Limited Company, or PLC, and act in compliance with the legislation of the country of incorporation.
The issuer and his consultants should draft and approve the document on admission to AIM and provide all necessary information for the investors in the company and its key data, including information about the Board of Directors. The company will have to disclose data about large shareholders, former directors and turnover capital. This document will assist potential buyers of securities to make reasonable investment decisions. The issuer will also have to pay fees according to the stock exchange tariffs.
Once the Placement Has Been Made
We have to note that for some companies admission documents are not required and they enjoy a simplified procedure for listing on AIM. This is possible in case the issuer’s shares have been quoted for at least 18 months by one of the so-called Designated Markets. This includes the world’s leading stock exchanges such as NYSE, NASDAQ, Deutsche Borse, Euronext and others.
Once the placement has been made, the company starts living by the new rules. Ideally, relations with investors built during the sale of shares will remain the same after the transaction has been closed. The main principle for the issuer is to provide investors with information about all substantial events of the corporation, about its financial status and business prospects. All data that can substantially influence the price of securities have to be disclosed.
According to AIM rules, issuers should prepare accounting reports under International Accounting Standards (IAS rules). There are certain deadlines for publication as well, which are within six months of the financial year-end for audited annual accounts, and within three months of the end of the half-year for unaudited interim accounts.
City Investment Bank is an international investment bank providing a range of services in corporate financing for developing enterprises. City Investment Bank is a member of the London Stock Exchange as well as broker and nominated advisor on Alternative Investments Market (AIM).

Table of contents
Corporate Finance: Bonds  Yerbolat Yeleshev 
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