Small Talk: Cash shells rush on to market to beat deadline

Moritz is back again; Shells to shock
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The Independent Online

This week is National Cash Shells Week. On Friday, the London Stock Exchange imposes new rules to make it more difficult to float companies with no operating business, companies which exist as shells for future acquisitions and whose share prices are some of the most volatile on the Alternative Investment Market (AIM).

More than 100 such companies already exist, and the Exchange thinks they are damaging the reputation of AIM, giving it the air of a grubby casino rather than a hi-tech market for growth companies. But by the end of Thursday, more than a dozen - perhaps as many as 16 - extra shells will have been floated, as their creators seek to escape the onerous new rules.

Those rules require a shell to float with more than £3m cash in the bank. The idea is that this sum will be beyond the network of rich friends and family who often back a shell's founding management. If professional institutional investors are required, the corporate governance of the shell company will be improved, the Exchange reasons. And if corporate governance is better, the Exchange has to spend less time investigating scurrilous behaviour by companies and AIM's army of retail investors are less likely to be pricked by sharp practices.

There has been some grumbling among company advisers about the speed with which the new rules have been introduced. Not everyone who is lining up a shell company will get in before the deadline, it seems.

The advisers have won one significant victory, though. The original proposals from the Exchange suggested automatic suspension for the shares in a shell company which fails to make an acquisition within a year. That won't now apply to companies floating after Friday, although it is being applied retrospectively to companies which float before the £3m rule is introduced. In other words, to the companies hurtling down the pipe this week. Fast forward to this time next year and expect many of the ropier of this week's new ventures to be finalising a value-destroying deal-for-the-sake-of-a-deal, or bracing themselves for a share suspension that will only serve to lock long-suffering investors into a dormant company.

Moritz is back again

One of the ironies of AIM's new rules is that they could not have prevented the extraordinary situation surrounding White Nile, the latest cash shell created by Phil Edmonds, the England spin bowler-turned-natural resources entrepreneur. White Nile saw its shares catapulted 1,285 per cent higher in manic trading in the week after its flotation. It raised £9m, well above the threshold. Yet it has generated all the wrong headlines and gossip in the City, as far as AIM is concerned. Now it is suspended, awaiting publication of the details of its disputed oil deal with the government in south Sudan.

However, the new rules do have a bearing on White Nile. It has just ditched Grant Thornton as its nominated adviser. Mr Edmonds says Grant Thornton has too much on to be able to wrap up its work on the White Nile document speedily, so he has moved his business to Numerica. But there are other issues which make the decision a sensible one.

This week the Exchange is also tightening the rules governing nominated advisers to AIM companies. It is giving itself the power to fine them for the first time. And it is barring partners, employees and associates of a company's advisers from sitting on the board. Brian Moritz, White Nile's one non-executive director, is a former head of the capital markets division of Grant Thornton.

As if holding the executive at White Nile to account is not work enough, Mr Moritz is adding to his portfolio of directorships with a new cash shell, which will just get in under the wire before the £3m rule kicks in. He is chairman of Nyati Resources, floating tomorrow with £1m in cash, "to acquire and develop interests in exploration and development-stage projects in the oil and gas sector, with a particular focus on coal bed methane projects, primarily in the American, African and Asian continents".

Shells to shock

So there is much for the thrill-seeking investor to choose from this week, then.

The natural resources investment boom, which many fear has taken on proportions, continues. Isis Resources and Ming Resources are new ventures from Craig Burton, a serial director of Australian mining companies, looking for mining businesses. Isis and Ming are looking for acquisitions in Africa and China, respectively. There is also India Star Energy, from the makers of Cambrian Oil& Gas.

There are returns for some of the market's larger-than-life characters, including Stephen Dean (who has strung together two of the buzzwords of the moment - Nanotech Energy - for the name of his shell) and Stephen Barclay (Petsome, to buy financial services firms, and Ricmore, to buy internet-related companies).

And then there are shells that, frankly, could do anything. HHK (Hirsch, Hough and Kirkland after the founders) is seeking acquisitions in "entertainment and hotels, real estate, retailers and support services".

Good luck to them all.