 "HNI limit should be pared")
Manic Monday 24th August 2015 saw benchmark indices lose over 5% on news from China. From that date over a fortnight the BSE SENSEX lost 2,164 points or 7.91% and NIFTY lost 645 points or 7.77%. During this period five issues opened and closed their books for subscription while the government did its offer for sale for Indian Oil on Manic Monday raising Rs 9,300 crores.
What is interesting to note is that shares of IOC were offered at a floor price of Rs 387 and investors including institutions who bought to support the government made money as the current price of IOC is at Rs 407.50, a gain of Rs 20.50 or 5.30%. Very clearly that issue sailed through quite comfortably.
The issues which tapped the markets did not do that well and had a tough time. The first of the block was Navkar Corporation Limited which was a hyped issue and market participants were talking of the High Net Worth Individual (HNI) portion being subscribed over 200 times. The HNI portion finally remained under subscribed at just about 0.90 and the overall issue 2.85 times. The company raised Rs 600 crores through the issue.
The third issue was from Shree Pushkar Chemicals and Fertilisers Limited which was subscribed 1.34 times. This was a small issue and raised Rs 70 crs.
The fourth issue was from Prabhat Dairy, which did not allot any shares to anchor investors and then had to extend bidding time and also reduced the price. The original issue price band was Rs 140-147 which was reduced to Rs 115-126. Even after the reduction the issue was subscribed a mere 0.77 times with QIB’s and retail remaining undersubscribed. The issue would be completed with the offer for sale portion of 1.47 crore shares being reduced proportionately from the issue size to offset the shortfall in subscription.
There was one issue which listed on 26th August from Power Mech Projects Limited. This issue was oversubscribed 38.12 times overall with QIB’s subscribing 27.53 times, HNI’s a staggering 133 times and retail 3.42 times. On the day of listing the leveraged investor (HNI) panicked when the share traded below his cost of Rs 112 as interest plus issue price of Rs 640 and sold. The share lost over 8.5% on day one and about 28.5% of the issue size was delivered on day one. The share as of Friday continues to trade in negative territory and is down 6.21%.
What happened? Where has the interest in primary markets gone? The problem is with the greed of promoters and their support by the merchant bankers. In their zest to get mandates merchant bankers value companies aggressively and their valuation is unable to absorb a 5% fall in markets thereafter. The second problem is the leveraged HNI who is allowed to distort demand by being allowed to create artificial demand as he is allowed to bid for one time of the entire book. He does so by borrowing and because he participates only where the issue is multi time subscribed he borrows at low margins of 2%. When things go wrong as they did in the case of Power Mech, a good issue becomes bad and genuine investors suffer.
Is there a solution? Simply allow HNIs to bid for the bucket size only. If this is introduced the highly popular and unwarranted grey market would stop, distortion of demand would cease and disaster like Power Mech where the issue was oversubscribed 38 times will not happen. The concern of overvaluation will also get corrected because the funding to HNIs is the basis of overpricing.
The author has a website: ak57.in
What is interesting to note is that shares of IOC were offered at a floor price of Rs 387 and investors including institutions who bought to support the government made money as the current price of IOC is at Rs 407.50, a gain of Rs 20.50 or 5.30%. Very clearly that issue sailed through quite comfortably.
The issues which tapped the markets did not do that well and had a tough time. The first of the block was Navkar Corporation Limited which was a hyped issue and market participants were talking of the High Net Worth Individual (HNI) portion being subscribed over 200 times. The HNI portion finally remained under subscribed at just about 0.90 and the overall issue 2.85 times. The company raised Rs 600 crores through the issue.
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The second issue was from Pennar Engineered Products Limited. This issue was undersubscribed in the retail category receiving bids for just 0.41% of the bucket size. The overall issue was subscribed 1.15 times after considerable behind the scene action. What is surprising is the fact that the anchor portion was very well subscribed and there were as many as 14 entities who had subscribed and were allotted shares in the anchor book.
The third issue was from Shree Pushkar Chemicals and Fertilisers Limited which was subscribed 1.34 times. This was a small issue and raised Rs 70 crs.
The fourth issue was from Prabhat Dairy, which did not allot any shares to anchor investors and then had to extend bidding time and also reduced the price. The original issue price band was Rs 140-147 which was reduced to Rs 115-126. Even after the reduction the issue was subscribed a mere 0.77 times with QIB’s and retail remaining undersubscribed. The issue would be completed with the offer for sale portion of 1.47 crore shares being reduced proportionately from the issue size to offset the shortfall in subscription.
There was one issue which listed on 26th August from Power Mech Projects Limited. This issue was oversubscribed 38.12 times overall with QIB’s subscribing 27.53 times, HNI’s a staggering 133 times and retail 3.42 times. On the day of listing the leveraged investor (HNI) panicked when the share traded below his cost of Rs 112 as interest plus issue price of Rs 640 and sold. The share lost over 8.5% on day one and about 28.5% of the issue size was delivered on day one. The share as of Friday continues to trade in negative territory and is down 6.21%.
What happened? Where has the interest in primary markets gone? The problem is with the greed of promoters and their support by the merchant bankers. In their zest to get mandates merchant bankers value companies aggressively and their valuation is unable to absorb a 5% fall in markets thereafter. The second problem is the leveraged HNI who is allowed to distort demand by being allowed to create artificial demand as he is allowed to bid for one time of the entire book. He does so by borrowing and because he participates only where the issue is multi time subscribed he borrows at low margins of 2%. When things go wrong as they did in the case of Power Mech, a good issue becomes bad and genuine investors suffer.
Is there a solution? Simply allow HNIs to bid for the bucket size only. If this is introduced the highly popular and unwarranted grey market would stop, distortion of demand would cease and disaster like Power Mech where the issue was oversubscribed 38 times will not happen. The concern of overvaluation will also get corrected because the funding to HNIs is the basis of overpricing.
The author has a website: ak57.in