Advisers back AIM despite scandals

Leading corporate advisers have thrown their support behind the regulatory model on AIM, despite the shadow cast over the market by the deepening crisis at suspended cash shell Langbar International.

Recovery expert David Buchler, who was called in to probe an alleged multi-million pound fraud at Langbar in 2005, indicated at a shareholder meeting last week that Langbar could be forced into letting its AIM shares lapse.

The group is searching for its main asset, a £365m deposit in a Brazilian bank. The scandal has cost private investors thousands of pounds along with similar incidents at cash shells Boustead and Easier. These events have raised doubts over the AIM regulatory model.

The AIM regime is far less onerous than the main board at the London Stock Exchange. On AIM, admission to the market does not need to be pre-vetted by the LSE, companies do not need to have a trading record, there is no minimum market capitalisation and regulation is managed by nominated advisers.

The flexibility offered by the lighter regulation is very attractive for small companies, and was so popular that 519 new companies listed on the exchange last year and raised £8.9bn in new funds.

The Langbar crisis, however, compromised this performance as questions were raised over whether AIM’s regulation was attracting companies of the necessary quality.

Philip Secrett, capital markets partner at Grant Thornton, however, said the individual situation at Langbar should not be extrapolated to the entire market. ‘The Langbar issue must be taken in perspective. Given the vast activity on AIM last year it is surprising that there were not more incidents,’ he said. ‘What happened with Langbar was unfortunate, but AIM has a good track record and has confounded its critics.’

Adam Hart, deputy head of corporate finance at KBC Peel Hunt, agrees that the Langbar situation should not be allowed to overshadow the success of the AIM model.

‘The problems at Langbar had nothing to do with the regulation on AIM. What happened with Langbar was caused by false disclosure, which could have happened on any market,’ Hart said.

Shareholder activist Nigel Smith, who has led the action groups for shareholders to Langbar, however, was convinced that what had happened at Langbar would ‘certainly’ affect confidence in AIM.

‘It has opened a can of worms. The LSE has hyped up the success of AIM, but needs to be careful that the drive to increase admissions does not turn AIM into a junk-bond market,’ he said. ‘The LSE needs to take a more active role in verifying the existence of company assets, especially when it comes to the numerous cash shells listed on the exchange.’

COMPANY REPORTS

IFRS force BHP Billiton to reshuffle tax while mining company Lonmin sees its operating profits climb

FTSE100
Mining conglomerate BHP Billiton has had to reshuffle $323m (£186m) in taxes as a result of IFRS. The charge relates to the treatment of royalties and petroleum related taxes. Prior to the introduction of IFRS these charges were reported as operating costs, but now have to be presented as taxes. BHP Billiton disclosed the change as it reported interimresults for the half-year ended 31 December 2005. The group reported a 43% increase in earnings before interest and tax, which came in at $6.7bn.

The maker of Captain Morganrum and Jose Cuervo, Diageo, has reduced its pension deficit from £1.3bn to £1.1bn over the lastsix months. Diageo added that it had reduced its effective tax ratefor the interim period to 14% compared with 28% of the same period in 2004. The group saidthe reduction was the result of an agreement with fiscal authorities over certain brand carryingvalues. The group reported an 8% increase in interim profits to £1.2m for the half-year ended 31 December 2005.

Old Mutual FD Julian Robertshas been nominated to take up the role of Skandia CEO. With Old Mutual set to complete its takeover of Skandia, Roberts will take his place on a new board of directors, if chosen, on 22 February. Roberts will end his term as Old MutualFD, and stand down from his non-exec directorships at Old Mutual subsidiaries. Chief executive Jim Sutcliffe said Roberts’ experience in bringing businesses together and in change management made him the ‘ideal candidate’ to take on the role. Old Mutual deputy FD Richard Hoskins will step in as acting group FD from 1 March.

FTSE250
Platinum mining company Lonmin has seen its 2005 operating profits climb from $347m (£199.7m) to $350m after restating its accounts under IFRS. Profits, however,were $4m lower at $201m asthe group was impacted byadverse fair value adjustments relating to embedded derivatives. The group emphasised, however, that although profits had comein lower under the new standards IFRS had no effect on the cash flows strategy.