International businesses considering an AIM flotation will need to plan ahead to make sure they have an appropriate group structure for listing.
The AIM market, which is the London Stock Exchange’s junior market for fast growing companies, will celebrate its 20th anniversary in 2015. While this is a short lifespan compared to the London Main Market and other stock exchanges around the world, AIM has proved more resilient than other junior markets, some of which have come and gone during its lifetime. With more money raised on AIM and more admissions to the market in 2013 compared to 2012, there is an expectation that the growth in numbers of admissions and amount of funds raised will continue in 2014.
The London Stock Exchange has long promoted AIM as “the international market for growing companies” and the latest AIM statistics show that of the 1,087 companies on AIM in December 2013, 463 (about 43 per cent.) have their main place of operation outside the UK. This international momentum has been maintained in recent years by interest from companies in emerging markets in Asia Pacific, India and Central/Eastern Europe, as well as from countries with a long-standing attraction to AIM such as Canada and Australia. Apart from the prestige of having an international listing, and the ability to raise funds from London-based investors (subject to market conditions), one of AIM’s key attractions is that it is more flexible than many other international markets. For instance, AIM has limited requirements for shareholder approval of transactions, no requirement for a trading track record and no minimum market capitalisation requirement.
International businesses coming to AIM will however have to plan ahead to make sure that the structure of their listed group is appropriate. The company applying for admission to trading on AIM is likely to be the holding company of a group of companies, often incorporated in different countries, and that holding company will need to be established in a jurisdiction with which investors in the London market are familiar and comfortable, and also be subject to a legal regime that conforms to the requirement for free transferability of shares under the AIM Rules. Shares in AIM companies also have to be capable of electronic settlement, which invariably means via the CREST system. Companies incorporated outside the UK, Channel Islands, Isle of Man and Republic of Ireland have to constitute depositary interests representing their shares. The depositary interests are traded in the CREST system, and this is marginally more expensive than the shares being traded directly.
While companies incorporated in a number of jurisdictions outside the UK are suitable to have their shares listed on AIM, an international business will usually have to consider whether its holding company is incorporated in an appropriate jurisdiction or whether a new holding company should be put in place. The choice of holding company structure is dictated by a number of factors, including the local legal regime of the holding company and its compatibility with listing, exchange controls, local taxation, the international tax treaties that will apply to the group companies, and the reputation of the holding company’s jurisdiction as a well regulated environment. Cost will also be a factor, as some jurisdictions are more expensive to operate in than others. Transparency of ownership, or lack of it, is unlikely to be an issue, as significant ownership interests in AIM listed companies have to be publicly disclosed.
This approach to structuring is exemplified by Chinese businesses listed on AIM which, having established a domestic corporate structure which complies with Chinese law and regulation (no mean feat in itself!), will typically have a Hong Kong intermediate holding company, which is itself owned by the listed holding company established in an offshore jurisdiction such as the British Virgin Islands or Jersey.
While an offshore centre is commonly used, the UK is often chosen as the place of corporation for a holding company, as it is viewed as having a progressive tax regime and participants in the London market are of course extremely comfortable with investing in UK public companies (PLCs). However, it should be borne in mind that since September 2013, all UK PLCs listed on AIM will be subject to the UK Takeover Code, as the exemption for PLCs considered by the Takeover Panel to have their place of central management and control
outside the United Kingdom, the Channel Islands or the Isle of Man was then removed in relation to AIM companies.
Although it is likely that an international business will be able to identify an appropriate jurisdiction for a holding company with the help of its legal, accounting, taxation and financial advisers, this is something that should be addressed at an early stage in the flotation process, as the mechanics of any necessary corporate restructuring will require planning, drafting, shareholders (most likely in different parts of the world) signing up to the documentation, and often application for regulatory consent and/or tax clearance. Also, the establishment and operation of an overseas holding company will invariably involve local agents, and it is key that a competent firm is engaged, in view of the high standards of corporate governance imposed by the AIM market, including the need to meet strict deadlines for filings and disclosure.
The article above was written by Corporate Partner Nick Williams and first appeared in Jordans Trust Company Limited’s April 2014 newsletter.
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