Mais non, Monsieur, mais non

Xavier Rolet, the respected chief executive of the London Stock Exchange, wrote an article for the ‘Daily Telegraph’ (25 June 2012) titled ‘Equity is the way to break firms’ addiction to debt’. In it he suggested solving the EU unemployment problem by creating the environment whereby the 23 million SMEs each employ one more person. It so happens that there are 22.7 million people out of work. This is Cameronesque rhetoric at its best.

Warming to his subject the writer said that

“Bank lending is never going to be the right way to fund highly innovative start-ups. Equity is.”

He continued

“The Chancellor deserves applause for the good progress already being made”

But he does explain what exactly is being done. Monsieur Rolet’s own suggestions are:

  • abolish stamp duty for AIM and PLUS companies
  • reduce capital gains tax
  • reinvigorate share-ownership schemes (no further details)
  • cut red tape for SMEs
  • ask the FSA to review their Conduct of Business rules
  • consider the impact of the new regulations such as Basel 111 as effecting UK pension funds.

Xavier Rolet failed to mention the market for which he is responsible, the Alternative Investment Market (“AIM”)  This was established in 1995 to provide a source of early stage equity for younger companies. It is now moribund in fulfilling that function.

In 2011 it lost a net 51 companies and 99 in the year before. Half the market (583 businesses) is valued at less than £20m. 399 companies are worth less than £10m. Perhaps, however, the best way to show how AIM has collapsed in its function of providing a source of equity for Britain’s enterprising businesses is to examine the ‘UK Recent Equity Issues’ in the ‘Financial Times’. Last week it showed the following data. For the three months May – June 2012 there were 21 new issues of which 15 were on AIM. Of these nine were overseas natural resources companies. Six companies were trading at below issue price.

With the current strife in the small-cap sector many AIM corporate advisers are struggling to survive. The cost of regulation (it needs a minimum of £500,000 to apply for an AIM trading facility) has rendered AIM totally ineffective as a source of equity for the country’s SMEs.

With respect to Xavier Rolet I would suggest that his vision of solving the EU’s unemployment situation is as ineffective as the performance of the small-cap equity market for which he is responsible.


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