BSE stake didn't make sense: LSE

India Inc has proved AIM isn't a Wild West market, says top exchange official.

The London Stock Exchange (LSE) did not pick up equity in the Bombay Stock Exchange (BSE) as it did not make commercial sense, a top official said.

"We explored the option, but didn't pursue the matter as the deal didn't make much commercial sense," Martin Graham, head of the Alternative Investment Market (AIM) and director of marketing services, LSE, told a team of visiting Indian media persons today.

Graham, however, said the cooperation with BSE would continue in several other forms and the issue of acquisition of stake would have no bearing on the cordial relations LSE enjoys with one of India's premier exchanges.

Graham's colleague, Hugh Sandeman, head of business development for India, added both the stock exchanges had a rich history of cooperation and that game is far from over.

Graham's comment comes shortly after LSE's arch rival, Deutsche Börse, the German stock and derivatives exchange, snapped up 5 per cent stake in the BSE for $42.7 million, taking the enterprise value of the exchange to $910 million.

Singapore Stock Exchange followed suit by picking up an equal five per cent stake "� the maximum allowed to a single entity "� for the same price.

Though the two LSE officials refused to comment further on the issue, independent sources in India suggested the Deutsche Borse had given in to some hard price bargaining by the BSE and ended up overpaying slightly. The Singapore exchange paid the same price as it had no other option.

But there might also be an element of sour grapes for the LSE which found its attempts to pick up stake in the BSE frustrated by the first mover advantage of its German rival.

The LSE, which was actively exploring taking stake in the BSE as part of wider moves to build up its international business alliances, could not make much headway as the Indian exchange was looking for only one European partner and the Deutsche Börse's move meant that London was excluded.

Both Graham and Sandeman were, however, ecstatic over the response from the Indian companies to AIM, which was established in 1995 as a market for smaller, innovative and fast growing companies.

"There is widespread recognition that AIM is an established and credible alternative for Indian companies. It's not a Wild West market," they said, in an obvious dig at the recent remarks of a US Securities and Exchange Commission official that AIM was nothing but a "casino".

AIM is clearly stealing a march on its US rivals. In 2006, LSE drew 123 international listings, of which 77 went to AIM, while Nasdaq attracted just 10 and the New York Stock Exchange 11 foreign IPOs.

And what perhaps added insult to the injury was that a substantial number of the 77 IPOs on AIM were from the US-based firms.

India Inc is not far behind. The listings by the Indian companies on AIM grew exponentially from $100 million in 2005 to $2.9 billion in 2006.

In the first three months of 2007, the Indian companies have already raised $336 million and another two listings worth around $215 million are expected to be completed shortly.

Sandeman said AIM is not a general alternative for the companies to raise capital. For this, India has a very strong capital market with decent turnover and appreciable foreign fund inflows. AIM is appropriate in specific circumstances, for good quality issuers, to raise capital.

On the advantages of listing on AIM, the two top LSE officials said the sixth largest exchange in the world gives potential access to a new set of investors, lighter (but not softer) regulations for certain transactions and equity fund raisings, with a corresponding reduction in time and resources expended and less prescriptive requirements for a company's daily conduct.

Broadly, there are four specific circumstances when the Indian companies can raise money on AIM.

Companies with significant overseas presence by way of subsidiaries, offers by an overseas subsidiary of an Indian company, follow-on GDR offerings by an Indian-listed company and foreign investment company raising money to finance Indian projects.

(The correspondent's trip to London was sponsored by the British High Commission)