Renewables index on AIM

A group of fuel cell companies have convinced the London Stock Exchange to consider plans to launch a renewable energy index on AIM.

With the drive for renewable energy gathering speed, AIM is providing a hub for the cultivation of a sustainable future, making the case for an index compelling. Since 2000, a total of £1.6 billion has been raised through IPOs on AIM for renewable companies, with an average £22.5 million raised per company. This is more than double the £10.6 million raised for new AIM companies in general since 2000.

The list would comprise the 69 renewable energy companies listed on the junior market which are spread across nine sub-sectors. These are: alternative power; biofuels; carbon credits; fuel cells; fuel economy / emissions; investment; recycling/bio-products; solar; and wind.

A spokesperson for AIM told M&A: “We encourage the visibility and liquidity in the market that the index would bring, however, the index is still very much in the development stage.”

Beware the earn-out tax trap

concerns before the expiry of business asset taper relief in April may still be caught by the tax changes if they plan to use an earn-out agreement, according to Chris Riley, a tax manager with accountancy firm CLB Littlejohn Frazer.

“Businesses are frequently sold using an earn-out agreement, and payments under such arrangements will probably be made past the new CGT rate deadline. That means sellers may still be liable for the new 18 per cent rate,” explains Riley.

Riley says that businesses looking to sell before 5 April can still benefit from the 10 per cent tax rate by settling entirely in cash or ensuring that the earn-out mechanism allows proceeds to be settled in cash (as opposed to a deferred sale of a portion of the business). He adds: “this creates potential cash-flow issues for the vendor, as the tax liability will crystallise immediately, which will need to be balanced against the potential overall tax saving.”

Quarter three UK acquisition values fall

The amount spent on foreign acquisitions by UK businesses fell in the three months to September by almost 50 per cent on the second quarter, according to new figures.

The Office of National Statistics reported that UK companies spent £9.3 billion buying overseas businesses in the third quarter, a fall of £8.3 billion on the value of these transactions in the three months to June.

The report suggested that falling deal activity was due to problems of raising debt to finance larger deals.

Also falling in the third quarter was spending by international businesses on UK companies. They spent £14 billion buying UK businesses in the three months to September, a fall of 73 per cent on the previous quarter when £51.4 billion was spent.

Of this figure, some £10 billion was spent on just two deals – the £8 billion acquisition of Hanson by German company Heidelberg Cement and Terra Firma’s £2.4 billion takeover of music group EMI.

Greater appetite for ABL as credit crunch bites

The credit crunch and the tightening of lending conditions have caused more UK businesses poised for expansion to look elsewhere, namely to their balance sheets, in order to finance business growth.

As private equity and other forms of debt become more troublesome to secure, £1 billion-turnover corporates have increased their appetite for asset-based funding to finance M&A activity. According to the Asset Based Finance Association’s (ABFA) third quarter results, £3.2 billion has been advanced to these businesses so far this year, up from £2.5 billion in 2006.

The number of SMEs and large corporates using asset-based lending has grown 20 per cent since September 2006, with the majority of capital released through outstanding invoices. However, the amount lent against other assets rose by a third.

Kate Sharp, ABTA chief executive, said: “The latest results give an interesting insight into how movements in the economy are affecting funding decisions being made by UK companies. As a result, they are examining their balance sheets more closely to identify where capital is tied up and are becoming more aggressive about how they can utilise their assets to fund business.”

London taps £250 billion Islamic sector

In an effort to give the UK’s Muslim community access to financial services consistent with their religious beliefs, the UK financial services regulator has published a paper setting out its role in the development of the UK as the major European financial centre for Islamic financial products and services.

The report entitled, Islamic Finance in the UK: Regulation and Changes, outlines the social and economic reasons supporting the introduction of an Islam-specific regulatory framework developed in accordance with rulings of Sharia on commercial and financial transactions.

The FSA has been demonstrating its flexibility on the subject since April 2007 with the introduction of new regulation giving retail customers taking out Islamic home purchase plans, or Ijara mortgages, the same protection as conventional mortgage customers.

Worldwide Islamic finance has grown at a conservative estimate of 10-15 per cent per annum over recent years and is worth about £250 billion globally, according to the regulator.

Commenting on the development, FSA chairman Callum McCarthy said: “There is huge potential for an expansion of Islamic offerings in the UK’s financial markets, which will in turn boost London’s position as an international financial centre.”

London is already home to a number of international banks that offer Islamic products at their UK branches and cites several listed Islamic securities.

News In Brief

CGT changes attitudes

Following changes to CGT, 52 per cent of businesses are now likely to wait two to five years before selling, rather than pushing for deal completion before next April, according to research published by corporate finance company Cobalt. The figures show a total of 78 per cent have lost trust in the Government because of the changes.

Blooming faith

Bank of England Governor Mervyn King has received wide support for his decision not to inject cash into the system during the beginnings of the credit crunch in August. A survey conducted by Bloomberg News agency revealed that 50 out of 59 economists questioned believe he deserves a second term.

In the second hearing before the Treasury Select Committee on 29 November, King predicted a growth slowdown and inflationary rises, prompting the recent decision to cut interest rates

BVCA pressures the Government

The British Venture Capital Association (BVCA) has suggested a number of changes in a submission to the Treasury concerning tax cuts aimed at boosting the SME sector.

According to the Association, the research and development tax cuts aimed at SMEs neglect companies backed by venture capital, but could be rectified by: “Amending the SME definition to cater specifically for venture capital-backed companies, or seeking a ruling from the European Commission which clarifies the “wider group” to cover such companies.”