Small Talk: So far, so good - but could AIM be heading for trouble?

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The Independent Online

The Alternative Investment Market celebrates 11 years of trading today, although not everyone is convinced it is in as rude health as the figures might imply. London's secondary market has seen an explosion in growth over the years, and now boasts 1,528 quoted companies, having started with just 12.

However, many AIM veterans feel that in seeking growth the market has sacrificed quality for quantity, and disappointing overall returns from the market might justify that opinion. A survey of AIM-listed companies by the business services group Baker Tilly highlights the surging growth of the market but also cites investor concern that established AIM companies might be struggling to attract new investors because of dilution by new issues.

According to one long term AIM observer, although it has witnessed remarkably few disasters in comparison to other growth markets, the next year could see a dramatic increase in the number of companies encountering trading difficulties.

He said: "AIM's success clearly demonstrates the positive impact the Nominated Adviser system has on a self-regulated market, but the next year will raise more questions over whether some recently floated businesses should be publicly quoted or not."

On the whole, AIM has been an outstanding success. According to Baker Tilly, in the year to 31 March, 199 new companies listed on the alternative market and raised £7.3bn in the process; no mean feat. The average market capitalisation of AIM companies has risen steadily and the number of nominated advisers has risen to 85, although it should be noted that many are yet to complete a deal.

How long the AIM boom will last is anyone's guess. The London Stock Exchange has historically operated AIM at a loss, due to regulatory rulings. But its new shareholders, US investment banks and rival exchanges, are unlikely to allow low fee paying to hang around for much longer at the risk of diluting quality.

Ithaca digs deep

It's all well and good for smaller oil exploration and production companies having licences and wells, but if you can't get hold of a rig to explore or develop fields then there's not much point in having them in the first place.

Last week, Ithaca Energy, a London and Toronto-quoted explorer, contracted a semi-submersible rig to drill a well on a discovery called Athena, in the North Sea. Like most smaller oil groups, Ithaca doesn't own its own rigs and has to lease them from owners.

Rigs are becoming increasingly difficult to source, a by-product of the high commodity prices and intense competition for assets. A few years ago, when there was a surplus of rigs on the market, the daily cost of hiring a rig was averaging less than $100,000 (£54,000) a day. Now, even for the most basic shallow water rig, the minimum required is $300,000 a day.

The word in the industry is that smaller companies without sufficient funding in place to drill are finding it increasingly difficult to sustain operations without rigs. Investors are becoming increasingly reluctant to back smaller companies, regardless of the estimated quality of reserves, if they cannot be accessed because of limitations in rig sourcing.

Ithaca has leased a rig for 30 days, which should be enough time to complete preliminary drilling at the Athena discovery, which the company hopes may contain as much as 24 million barrels of recoverable oil. Since raising £30m via an institutional placing two weeks ago, the company looks in better shape than many of its peers.

Nanotech Energy

The former AIM-listed cash shell Nanotech Energy is having an extraordinary general meeting today to confirm a reverse take over of Impact Funding UK. Nanotech was admitted to trading in March 2005 and has been working on this deal since December last year.

Impact is a "mainstream pre-settlement lender". That means law firms taking cases to court want clients to provide funding for cases prior to taking them on. Impact provides loans to clients and law firms to enable cases to proceed and charges interest on those loans. The loans are repaid when the case is closed. Demand for this type of financing has mushroomed since most forms of legal aid for personal injury claims were abolished on the introduction of the Access to Justice Act in 2000.

The independent investment bank Daniel Stewart is acting as nominated adviser and broker to the deal, and has raised £4.25m of new cash for the group. Talk in the market is that there was good demand for the offer. The EGM will also propose a share consolidation at a rate of one new Impact share for every 10 Nanotech previously held. The group hopes that the consolidation will attract institutional investors rather than just retail traders looking for penny shares.

Vimio to ring up a mobiles deal

Vimio, the Aim-listed provider of media distribution solutions, looks set to announce a deal with a Dubai-based media group to beam Real Estate TV direct to mobile telephones. Real Estate TV, operated by the Al Aqariya group, is broadcast throughout the Middle East and will soon be available to 10 million Arabic-speaking households in the US. It claims 150 million viewers world-wide.

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