Italy: Developments of the alternative investment market

Alternative Investment Market (AIM) Italia is the market of Borsa Italiana (the Italian stock exchange) established on the 1st March 2012 and devoted to Italian SMEs with high growth potential, which are the backbone of the Italian economy.

This market was conceived to offer a faster and more flexible procedure for listing that may meet the needs of medium and small businesses. In fact, different from regulated markets, AIM Italia, which is a multilateral trading facility, establishes only a few minimum admission criteria. The basic requirement is the continuous presence of the socalled ‘Nomad’ (nominated advisors), frequently an investment bank or an investment company, both in the preadmission and post-admission stages, which defines, inter alia, the free float of the company that will be admitted to the market appropriate for ensuring adequate liquidity to the security and adequate corporate governance for protecting minority shareholders.

On the other hand, there are no minimum or maximum requirements in terms of size or capitalization of the company or specific economic financial prerequisites but a minimum threshold of shares on the market (10%) in terms of floating is provided.

Total funds collected in IPOs since 2009 amounted to almost EUR1 billion (US$1.17 billion): EUR922 million (US$1.08 billion) by newly issued shares and EUR69 million (US$80.69 million) by the sale of existing shares. As at December 2017, 95 companies were listed on AIM Italia with 23 new listings (vs. 10 in 2016), and total market capitalization was EUR5.6 billion (US$6.55 billion) (+94% vs. year-end of 2016).

The recent growth of the market is mostly due to the recent tax incentives introduced by the Italian 2017 Stability Law (the Law). In the attempt to channel resources to the real economy and reduce dependence on banks, the Law introduced the so-called PIR individual savings plans, a tax-exempt measure for individuals entering into investment plans managed by dedicated funds. The PIR plans are investment products designed for small and mid-sized companies, with complete tax exemption (a 26% rate) for the capital gains obtained on investments of EUR30,000 (US$35,083.4) a year, up to a combined EUR150,000 (US$175,417), for long-term investments maintained for at least five years. A PIR plan is in substance a taxshielded box in which retail investors can put any kind of financial instruments (savings accounts, stocks, bonds, investment funds).

It should be possible, through an appropriate screening, to identify a basket of companies listed on AIM Italia which meets Shariah criteria, such as those that are not involved in non-Shariah compliant activity. In particular, the applied screens could be, similar to other Shariah compliant indices, business activity (therefore excluding companies engaged in alcohol, tobacco, porkrelated products, entertainment (casinos, gambling and pornography), weapons and defence, conventional financial services (such as banking and insurance) and biotechnology companies involved in human/animal genetic engineering) and a financial ratio screen having regard to debt, cash and interest-bearing assets, accounts receivables and such.

Once the basket has been identified, Islamic investors could invest in the companies in the basket knowing that they are fast-growing and meet Shariah criteria.

This article was first published in Islamic Finance news Volume 15 Issue 30 dated the 24th July 2018.