Listing in India remains onerous: E&Y official

Richard Smee is a partner in Ernst & Young (E&Y) where he leads the firm's services to the real estate industry including helping Indian companies to raise funds through the London Stock Exchange and its Alternative Investment Market (AIM). In an interview with Business Standard, he says that the process of listing in India is onerous and this is the main reason why more and more small India companies opt for AIM listings. Excerpts:

Why are more companies going to London market these days?

There is a huge amount of liquidity in London. It provides access to a wide set of investors, wider than you would get in India. The process for listing in India is onerous. More onerous than even in London. AIM was designed as a second market for smaller companies.

For smaller companies, the transformation from private to public is not an easy one. The AIM market provides a slightly reduced set of regulations for those companies which helps in making the transformation. And in due course, those of them who succeed go on to the main market.

The process of listing is just as arduous as listing in any other markets. In place of very heavy regulation from the stock exchange, each company on AIM has to have a nominated advisor (Nomad), which is usually an investment bank. Their role is to act as a mentor as the company begins its journey from private to public.

The regulator is relying on Nomad to keep a close watch on the company, particularly in the early year or two. This is a much more attractive framework for many companies within which to go to public market initially than facing the full rigour of the regulators "� whether it be Sebi or the London Stock Exchange.

Why are several realty companies opting for the AIM market from India?

The principal reason that so many realty companies going public is that until very recently, in order to go to the main London market, you had to have a 3-year track record. If you look at the real estate listings on AIM, they are not the listings of the whole existing company. It is a listing of a new company into which a number of projects were put.

You take Unitech, Hirco, Ishaan or others. What they have done is that they have taken the opportunity to take five, six, seven of their major projects and provided investors with a new company in London with an opportunity to invest in those projects. It therefore means, there wasn't a three-year track record for the project as typically it was all just land.

What's changed in the last couple of months is LSE has now changed its rules for overseas companies. It no longer requires a three-year track record. So, I would expect to see a number of bigger real estate companies listings going to the main market rather than to the AIM.

Financial information required in London is less than they are in India which may make listings easier. AIM was set up as a smaller market for growing companies. There has been some concern that it was being misused by larger companies whether it be real estate, mining and now there is an unofficial cap of £ 500 million. That's now going to be rigorously enforced now.

Now that the main market has reduced its requirements, it leaves AIM to reinforce the size criterion and get back to the sort of market it intended to be. If you wanted to raise POUND 1 billion, then AIM is not the right market.