What reasons are there for insurers to stay listed?
Financial stress is increasingly the reason behind the number of firms delisting from the Alternative Investment Market (AIM) according to research by law firm Trowers & Hamlins. The number of companies delisting from AIM has jumped to a whopping 33% over the last year. This year (to March 2009) 290 companies delisted compared to 218 companies in the previous year. For this quarter alone there were 77 delistings, compared to just 45 in the same period in 2008.
Culver Holdings cited costs and regulatory burden as the reason for leaving the London Stock Exchange. Figures produced by Trowers & Hamlins showed that this is a growing problem. According to the law firm, there has been a threefold increase in the number of companies who have left AIM for this very reason. “Being listed costs between £100,000 and £500,000 a year and that’s just the basic running costs. The real problem is that any transaction under current legislation is incredibly expensive in terms of advisors fees,” said John Biles, finance director of Culver Holdings. Culver has been listed on the London Stock Exchange since 1991.
Culver also dismissed an AIM listing as too expensive. It admitted further that the second half of 2008 bore an increase in costs and that the company suffered a reduced income due to the economic climate.
Steve Burrows, chief executive, of AIM-listed Cobra said it was worrying that companies were increasingly thinking of delisting. “I understand that two thirds of all the companies on AIM are considering it. This doesn’t make it a particularly healthy environment if everyone delists.”
But he added that delisting was a consideration for Cobra last year. “Delisting just hides you from the public eye, i.e. you can stop your shares from being traded, but for ten years you have to adhere to AIM rules. This is something we looked into six months ago to see what the rules were and delisting for us wasn’t attractive.”
Another reason for delisting is down to the inability to raise new funds for working capital. According to Trowers & Hamlins, nine companies over the last year explicitly cited their inability to raise new funds as the cause for delisting versus zero in the previous year. Duncan Hall, equity analyst at Finncap, added: “It’s difficult to raise money for small caps. If you aren’t getting more shareholders or money in, some companies may then wonder ‘what is the point on being listed’.”
But is this the right time to delist? Hall says it depends on individual circumstances and added that perhaps the appeal of anonymity may be another reason for some companies. But he pointed out that growth had been so exponential on AIM over the past couple of years that it was logical that there would be some delistings now that the market has turned. “When you get a bear market there is very little interest in [investing in] small caps. If the costs of the company existing on the exchange are too high then they shouldn’t be listed in the first place.”
