AIM under fire as cash shells breach LSE rules

The Alternative Investment Market suffered a blow last week after the London
Stock Exchange hinted that shares from more than 40 companies face suspension
because they are ‘cash shells’ that have failed to meet the exchange’s new

As part of a clean-up of AIM stocks, the LSE last year ruled that all cash
shells must raise a minimum of £3m from 1 April this year. Shells worth less
than this have to make a significant acquisition within 12 months of that date.

‘The rules are to ensure that the market attracts investing companies with a
clear strategy and vision,’ said an LSE spokesman.

The LSE, refusing to identify the individual companies, believes that
although a few may be in the middle of a deal, a number will not make the 1
April deadline.

It is estimated that at least 70 cash shells, worth around £100m, will have
to meet this requirement.

The 10-year-old AIM, which was founded mainly as a junior market for
high-growth stocks, has so far been a success because it has been a quicker way
to raise money for investing companies, yet retains a light regulatory touch
that still protects investors.

The sharp rise in the number of foreign company floats has also been one of
the driving forces behind the growth enjoyed by AIM during the past few years.
It currently has around 1,400 companies quoted on it.

But amid all this success there was always the risk that cash shells or
investing companies, brought mainly to the market to raise money to be used for
later acquisitions in specified areas, were likely to be exploited.

A scandal at suspended Langbar International, where it has been unable to
prove the existence of its £365m main asset, highlights the need for investors
to handle such stocks with extra care.

There have been reports that a large number have lain dormant, failing to use
the money, while payments continue to be to the board and other advisers.

However, recent mounting concerns over the quality of a number of cash shells
joining AIM has prompted the LSE to implement reforms aimed at safeguarding the
junior market’s reputation.

Corporate finance director at HB Corporate Finance David Newton said: ‘AIM’s
tightening of the regulations, with regards to its treatment of cash shells, is
a significant step in its attempts to maintain and improve the quality of the
market and its constituent companies.’

Company reports

Rank Group has announced plans to plough £100m into its pension fund over the
next four years,after revelling a 13.6% drop in underlying profit last year. The
owner of Hard Rock Café and Mecca bingo halls reported profits of £85.4m for
2005, down from £98.8m the previous year. The company said the sale of the
Deluxe Film brand would help offset the disappointing performance of the Blue
Square online gaming
division, and enable the company to return £200m to shareholders through a share

buy-back. However, Deluxe Media, which reported losses of £16.4m last year,
would have to be broken up before sale as no overall buyer had been found,
outgoing CEO Mike Smith explained.

HSBC Holdings announced the largest profits for a UK high-street bank on
when it revealed that loan impairment charges and other credit risk provisions
$7.8bn (£4.4bn) in 2005, $1.6bn higher than 2004. The bank made a profit of
$20.97bn last year, which was 11% higher than 2004. The group’s total assets at
the end 2005 were $1,502bn, an increase of $222bn, or 17%, since 31 December

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