What is of Tokyo AIM?

Hello. This is Irino, a strategy consultant. I visited Tokyo Stock Exchange with my client the other day and heard about Tokyo AIM from the person in charge.

Possibilities of Tokyo AIM

It’s an emerging market that Tokyo Stock Exchange is planning to launch using AIM（Alternative Investment Market）of London Stock Exchange as a model. The characteristic idea is to allow only professional investors and people whose financial assets exceed 300 million yen. Private investors can’t participate. The market is scheduled to open sometime after next year, but it’s got a potential of solving problematic aspects of existing markets like Mothers or JASDAQ, so I am having high hopes.

■　Possibility 1: No J-SOX & No quarterly disclosure

What venture companies find troublesome are J-SOX and quarterly releases of listed companies. It requires venture companies to spend a huge amount of time and money for internal control before getting listed. Also, a heavy disclosure duty of quarterly releases lies on venture companies even after getting listed. Tokyo AIM requires neither J-SOX nor the quarterly releases, so things will be a lot easier for venture companies.

■　Possibility 2: You can expect to raise more money as funds

The current condition of existing emerging markets is really terrible. There were only 24 newly-public companies in the first half of 2008. The percentage of companies that raised below 500 million yen as funds at the time of getting listed amounted to 61% and the average PER of offer price when going newly-public was a little less than 15 times. This is a historically low standing. On the other hand, the average PER of London AIM is approximately 30 times. Investors are professionals and corporate evaluation tends to be severe, but at least better than PER of the current Japanese market.

■　Possibility 3: Stock plunge may not occur frequently after getting listed

Private investors flock immediately after IPO and withdraw really quickly. The current condition of existing market in Japan is like this. London AIM market is not so fluid for better or worse and only professional investors who have assessed corporate values from mid and long-term point of view take part in the trade, so business managers do not have to be deluded by private investors.

■　Possibility 4: Investment from overseas

Foreign investors are not seriously participating in the existing emerging market in Japan. There are limits if only Japanese companies are getting listed. London AIM is a global market in which 20% of the companies listed are non-British. Tokyo AIM has a possibility of growing into a market which foreign companies from Asia take part in and attract foreign investors as a result. Companies that are engaged with global businesses stand a better chance of getting good evaluation from foreign investors rather than those from Japan and receiving investment money.

It is important to find a good J-Nomad

The current total value of London AIM is more than 20 trillion yen and is the world’s biggest market for emerging companies. The key to the market’s success is a system called Nomad (Nominated Advisor). A similar system called J-Nomad is scheduled to be introduced in Japan as well. Many of J-Nomad are stock brokerage firms that fulfill practical obligations of listing screening and continue providing support of fair disclosure even after getting listed. This means the practical hurdle of listing screening has shifted from stock exchange to brokerage firms and venture companies will be associating with brokerage firms more than usual and receive long-term support from them for matters like disclosure after getting listed and fund-raising.

That’s it for today.

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