The Alternative Investment Market (AIM) is the secondary listing market that Lusaka Securities and Exchange (LuSE) has provided for companies that meet a particular criteria. For some time, TFHZPC has been discussing with LuSE and the Securities and Exchange Commission regarding the subscription to the AIM. Findings thus far indicate that small and medium sized enterprises (SMEs) who are the targeted companies for listing have shown minimal interest in pursuing a listing on AIM.
But why is the interest so low? Don’t these SMEs know that this could actually be best way they can access capital if their business ideas are so grand? Why are they so reluctant? Does it have something to do with the requirement of the firm having a minimum of 5 directors or the minimum turnover requirement of K250,000? From discussions with LuSE and SEC, it appears perceptions of what the AIM is and what it intends to achieve have been misunderstood by SMEs in Zambia. In addition, corporate governance in these small companies is a huge issue as the lines between ownership and control are often blared.
Ironically, in the UK, more and more small firms have chosen to participate on their AIM over the last 22 years. In fact, according to a paper by John Doukas and Hafiz Hoque (Why firms favour the AIM when they can list on main market?) “during the 1995 to 2014 period, 577 out of 1143 AIM listed firms did not qualify for Main Market listing, but the rest (566) that raised equity in AIM could have joined the Main Market (MM)”. What this implies is that in the UK, companies that actually qualify to be on the stricter MM actually opt to list on their AIM.
In the case of Zambia, TFHZPC believes that the allure for the AIM has not been sold enough. Information asymmetry continues to be prevalent with SMEs that do not understand that the AIM actually has lower listing and ongoing costs. Furthermore, the AIM could potentially be the next frontier for capital raising for SMEs in Zambia. For some time, they have often complained about how difficult it is to raise capital and access finance from financial institution owing to the high interest rates. However, some SMEs have not been prudent in the dealings and have opted for even more expensive money from “loan sharks”. However, the reasoning for the latter is that when deals come to the table, it is a matter of life and death and many find themselves with no option but to borrow big so that they can meet the requirements of their acquired contracts. However, the consequences are clear, expensive money punishes their income statement. Owners of SMEs who only have a clear eye for the top half of the income statement bemoan that fact that it is the cost of sales (rather the cost of debt) that inevitably kills their business.
Viewed in a different perspective, how about sharing ownership of your SME? Giving up a piece of your dream is not a death sentence. Listing on AIM has the potential of unlocking value in ways that do not harm the income statement. In fact, the balance sheet will tell tales of how through financing raised from AIM allowed the firm to acquire much needed property plant and equipment that enable it to compete favorably. Furthermore, working capital is devoid of pressure from lenders and focuses on the core operations of the business. In short, the SME runs the firm on their terms.