The Australian Stock Exchange (ASX) has set the bar too low when it comes to its entry criteria, allowing companies that have no place on the exchange to list, according to a corporate advisory specialist.
The Australian Stock Exchange (ASX) has set the bar too low when it comes to its entry criteria, allowing companies that have no place on the exchange to list, according to a corporate advisory specialist.
Finance group HLB Mann Judd's Justin Audcent said too many smaller companies, especially in the resources sector, were listing when they did not meet the corporate governance guidelines suggested by the ASX.
Audcent said a secondary market along the lines of the United Kingdom's Alternative Investment Market (AIM) would be more suitable.
"The ASX is not the right market for many of the smaller companies that are listing, especially in the resources sector. There is just no liquidity," he said in Sydney yesterday.
AIM was set up in 1995 by the London Stock Exchange to cater for smaller, more risky initial public offerings (IPO). It allows smaller companies to float shares in a more flexible regulatory environment than the main market and offers generous tax cuts to investors.
AIM's popularity has soared since 1995 and it has raised almost #25 billion for well over 2000 companies, including 44 Australian firms.
Audcent said, however, the Australian Government needed to introduce the same tax efficiencies that were applicable on AIM before any kind of momentum could be built.
"Let's re-energise this market and put in tax breaks. At the moment companies that should really be listing shares publicly are instead choosing a trade sale," he said.
"In the UK, venture capital trusts have been established specifically to invest in AIM listed companies.
"This provides liquidity for companies that might otherwise not have been traded."
A total of 165 companies raised money on the ASX last year, 75 per cent of which were small caps.
The flood of resources companies looking to float shares on the ASX, however, has masked a 40 per cent decline in IPOs in other sectors in the past two years.
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