Rich investors borrowed Rs 4,000 cr to bet on Wonderla public offer

Break-even only if IPO lists at 25%-plus premium

At least Rs 4,000 crore worth of leveraged bets by high net worth individuals (HNI) and companies are riding on the Initial Public Offering (IPO) of amusement park operator, Wonderla Holidays.

Buoyed by an attractive grey-market premium, several wealthy investors have borrowed heavily from non-banking financial companies (NBFCs) to invest in the Rs 180-crore offering of the Kochi-based firm, which has received applications worth Rs 6,800 crore. Also, market sources say, financing arms of several large brokerages have lent to investors at seven-10 per cent interest rate for up to 10 days.

According to investment bankers, considering the borrowing costs and oversubscription, leveraged investors might break even only if the IPO lists at a premium of 25 per cent or more.

The cost of acquisition for HNIs — after factoring in the interest costs and allotment ratio — is between Rs 25 and Rs 30 a share, say people with the knowledge of the development. Shares of Wonderla are said to be exchanging hands at around Rs 160 apiece in the grey market, against the expected issue price of Rs 125 when the shares list on or before May 8.

 

  According to bankers, if the company’s shares list at the current grey-market price, HNIs could still get a spread of Rs 10 apiece. “Grey-market premium indicates that leveraged investors will still make profits, but the quantum could be less due to the heavy oversubscription. Bets could be wrong if the grey-market premium comes down with an adverse change in the secondary market,” says an investment banker who does not wish to be named.

The grey-market premium for Wonderla shares, market players say, has only shot up from around Rs 10 apiece last week to as much as Rs 40 during the IPO period. This has attracted a lot of wealthy investors.

Leverage-based applications in public offerings are a common practice, where wealthy investors apply for shares with borrowed money and exit on listing.

In the past, IPOs of commodity bourse Multi Commodity Exchange (MCX) and rating agency CARE had seen subscriptions of more than 100 times in the HNI segment.

Typically, HNIs invest in issues where listing gains are expected to be in high double digits.

Earlier, HNIs have been seen getting awry in IPOs like that of Reliance Power, where shares failed to sustain above the issue price. Shares of companies often come under pressure on listing due to heavy selling pressure from leveraged investors.

The Wonderla IPO, which closed on Wednesday, saw 160 times subscription in the HNI category and 38 times overall. This means an HNI investor applying for 160 shares will be alloted only one share. Wealthy investors and companies are said to have made applications in the range between Rs 10 crore and Rs 100 crore in the issue.