KSK Power has delisted from AIM to join the main market of the London Stock Exchange. The move is indicative of India Inc’s growing appetite for overseas capital

After a little over three years on the alternative investment market (AIM) of the London Stock Exchange (LSE) Indian energy company KSK Power Ventur made its move into the exchange’s coveted Main Market on 31 March.

Commenting on the move the company’s chairman, TL Sankar, said: “AIM has been an excellent platform to support KSK’s development to date. With a market capitalization today of over £800 million (US$1.2 billion), KSK is one of the largest companies listed on AIM. We believe that moving the listing of our shares to the main market of the London Stock Exchange is a significant step and appropriate at this time as we are entering a significant new phase of development and growth initiatives at KSK.”

AIM v main

Key differences between the London Stock Exchange markets

Admission requirements

AIM accepts early stage companies for listing, whereas a main market listing has requirements that include:

  • At least three years of audited historical financial information.
  • At least 75% of the entity’s business must
  • At least three years of audited historical financial information.
  • At least 75% of the entity’s business must be supported by a revenue earning track record for the three-year period.
  • Control over the majority of the entity’s assets for the three-year period.
  • Clean working capital statement (sufficient working capital for at least 12 months from the date of the prospectus).
  • Meeting requirements of capital adequacy for 12 months.

An AIM listing does not prescribe a minimum size for being admitted, whereas the main market requires a minimum market capitalization of £700,000.

AIM does not require a minimum threshold of public shareholding, while the main market requires at least a 25% public float.

Unlike the main market, which requires pre-vetting of admission documents by the UK listing authority, the admission documents for AIM are not vetted by the UK Listing Authority or the LSE unless the admission document is also a prospectus.

An AIM-listed company requires a nominated adviser (NOMAD) at all times. These specialist corporate finance firms are responsible to the LSE for evaluating the suitability of an applicant to AIM. NOMADs have continuing obligations of advising and guiding AIM-listed companies about their responsibilities to comply with the exchange’s rules and regulations.

The listing fee for the main market is much higher than the fee for listing on AIM.

Continuing obligations

In most cases an AIM-listed company requires no prior approval from shareholders for transactions. However, a main market-listed company needs prior approval from its shareholders, and/or should have given notice to them for certain transactions through pre-emption rights and the class tests. Primary listed issuers incorporated outside the UK do not have to comply with the pre-emption rules.

Certain similarities between the two markets on continuing obligations include rules regarding publication of annual and interim or half yearly accounts, insider trading and publication of price sensitive information.

In making the move, KSK Power Ventur, which has interests in multiple power plants across India, signalled its emergence as a company of high quality and good governance. The main market of the LSE is regarded as the more prestigious and its higher regulatory standards can be daunting. International companies hoping to gain access to what is arguably the world’s deepest pool of international capital often use lateral moves to get there.

Listing procedures and technicalities

In the past few years, AIM, which was launched in 1995, has drawn the attention of small to mid-cap Indian companies as the preferred overseas route for raising capital to fund inorganic growth. Listing on AIM improves a growing company’s visibility and prepares it to graduate to the main market in due course. AIM listing also provides an effective exit mechanism for institutional investors who have invested in the previous financing rounds of such companies and seek to unlock their value in the equity capital markets.

India’s foreign exchange regulations and lack of capital account convertibility do not permit an Indian company to list its equity shares on overseas exchanges. In addition the regulations do not permit an Indian company to offer convertible instruments (foreign currency convertible bonds) or derivative instruments (American depositary receipts and global depositary receipts) in overseas jurisdictions, unless it is already listed in India or is seeking a simultaneous listing in India. As a result, a number of Indian companies list on the AIM through holding companies set up in offshore jurisdictions.

KSK Power Ventur chose the offshore jurisdiction route and so before listing on AIM, it set up shop in the Isle of Man. This island, while priding itself on providing “all the benefits of UK political stability without the cost”, also maintains high regulatory standards and a favourable tax regime. This combined with its proximity to the UK makes it a perfect offshore location for Indian companies.

Structural considerations

Moving to the main market from AIM did not create any legal or regulatory hurdles for KSK Power Ventur in India except for the requirement of announcing the move to the Indian stock exchanges.

However, the move did require substantial due diligence. This entailed determination of the corporate organization of the KSK group, foreign exchange and foreign direct investment compliances, and compliance with regulatory laws applicable to captive power projects in India. The KSK group has power projects in various stages of operation, execution, development and planning. Its power projects vary in size from 43 to 3,600 megawatts. Such business activities are undertaken through 28 special purpose vehicles and as such the magnitude and scale of the due diligence and verification exercise was significant.

KSK Power Ventur’s Indian subsidiary, KSK Energy Ventures, is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) of India. It is essentially a holding company that promotes, develops and manages captive power projects across India through project specific special purpose vehicles. Over the next few months, with the commissioning of three more power plants, KSK Power Ventur’s cumulative operating power plant capacity is set to rise to over 862 megawatts.

UK-bound: The London Stock Exchange continues to be a popular destination for Indian companies raising capital overseas.
UK-bound: The London Stock Exchange continues to be a popular destination for Indian companies raising capital overseas.

The move by KSK Power Ventur to the main market of the LSE sets a strong precedent for Indian companies. While it signifies the potential of Indian companies to find favour on global stock exchanges, it also typifies a proactive approach by companies to gain access to international equity capital markets.

Hoping to use a more direct approach is Essar Energy, which recently announced plans to raise around US$2.5 billion through an initial public offering on the main market of the LSE. Being billed as potentially the biggest Indian IPO in London, this could result in Essar Energy being considered for inclusion in the FTSE 100 Index.

While both KSK Power Ventur and Essar Energy appear to be on track to finance their ambitious growth plans, the clear winner is the LSE, which through both its main market and AIM continues to be the overseas stock exchange of choice for India Inc.

Nikhilesh Panchal is a partner, Vikas Kumar is a senior associate and Madhur Kohli is an associate at Khaitan & Co. The firm acted as Indian counsel to KSK Power Ventur on its move from AIM to the Main Market of the London Stock Exchange. London-based law firm Lawrence Graham advised the company on UK law.