Employees of a company are believed to be the first to know the intricacies of the organisation, but if one goes by their response to most of the recent public offerings, it appears that they are the last ones to subscribe to their company shares.
Data shows almost all the initial public offers (IPOs) and the follow-on public offerings (FPOs) that hit the market in the current calendar year saw the employee quota receiving only a handful of applications, even as the overall issue was subscribed more than once.
According to data from Prime Database, barring the IPO of Emmbi Polyarns, no other issue saw the employee quota getting fully subscribed. In several issues — Jubilant Foodworks, Thangamayil Jewellery, Vascon Engineers, Texmo Pipes and Products, Pradip Overseas — applications in the employee quota were only a few hundred or even less.
Investment bankers attribute the trend to the bleak outlook for secondary markets and the tepid performance of shares, post listing, in most offerings this year. Employees, just like ordinary retail investors, are betting on future stock performance, they add.
“If one goes by the empirical evidence, the low response within the employee quota has now become a recurring issue,” said the head of a domestic investment banking entity. “In many issues this year, the stock performance, post listing, has not been impressive and this has led to many investors, including employees, staying away from the offer.”
The low subscription within the employee quota may well be a recurring issue but it is certainly not the first time it has come under the spotlight.
Last year, the Securities and Exchange Board of India took a hard look, after investigations revealed a few fake employees cornered all employee quota shares during the IPO of Pyramid Saimira Theatre. Post the inquiry results, the market regulator examined most of the issues in which a handful of applicants cornered a significant chunk of shares reserved for eligible employees.
| COLD SHOULDER | |
| Issue | Employee subscription |
| Jaypee Infratech | 0.12 |
| United Bank of India | 0.69 |
| Texmo Pipes | 0.31 |
| Jubilant Foodworks | 0.01 |
| Man Infra Construction | 0.44 |
| DQ Entertainment | 0.58 |
| NMDC | 0.05 |
| REC | 0.85 |
| NTPC | 0.44 |
| SJVN | 0.26 |
| Source: PRIME | |
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There have been lot of deliberations on whether the employee quota should be done away with. In November 2009, Sebi tightened the norms, putting a ceiling of Rs 1 lakh on the value of allotment for a single employee. Also, the overall employee quota was reduced to five per cent, instead of the earlier 10 per cent of the issue size.
"The issue (employee quota) needs to be handled carefully," said Prithvi Haldea, chairman and managing director, Prime Database. "Employees need to be given some kind of preferential treatment. One can use the bottom-up approach for allocation by giving full allotment to smaller bids.”
The cold shoulder from employees is not good news for the government; it is looking to divest its stake in many high-profile public sector undertakings and is keen to attract retail investors in huge numbers. The Left parties have been arguing for measures to increase retail and employee participation in the issues.
The four mega-divestment issues of NTPC, NMDC, REC and SJVN witnessed a similar lacklustre response from their employees. The employee section of SJVN was subscribed a mere 0.26 times.That of NTPC and REC were subscribed 0.44 times and 0.85 times, respectively. SJVN had offered smaller investors a discount of five per cent to the issue price.
The coming months would see the government diluting its stake in Engineers India, Hindustan Copper and Coal India. The subscription within the employee and retail segments would be keenly watched.