Street signs: HNI IPO bets on thin ice, lapse in rights entitlement & more

Fund managers lap up AT1 bonds
 
Yields on the additional tier-1 (AT1) bonds of several banks spiked last week following Sebi’s proposal to cap MF investments. Industry players said some debt fund managers used this as a buying opportunity. “The AT1 yield spike provided a good buying opportunity for fund houses and schemes that are currently under-invested in perpetual bonds,” said a fund manager. From April 1, an MF scheme can invest only up to 10 per cent of its corpus in perpetual bonds and up to 5 per cent in bonds of single issuer. At a fund house level, more than 10 per cent of assets can be invested in perpetual bonds of a single issuer.    

 
HNI IPO bets on thin ice
 

Last week, high net-worth individuals (HNIs) incurred losses after Easy Trip Planners’ listing gains failed to match expectations. Shares of the online travel company gained only 10 per cent. Grey market activity had pegged the listing gain to be at over 70 per cent. “Based on indicative prices in the grey market, HNIs have placed bids on other IPOs such as Anupam Rasayan and Laxmi Organic. If the listing gains are muted as in case of Easy Trip, HNIs will suffer huge losses. This will impact demand for future issues,” said    a banker. He said weakness in the secondary market amid spike in US bond yields dented investor sentiment towards IPOs as well.

Lapse in rights entitlement
 
Imagine buying an expensive ticket for a concert and then not turning up. Something similar is playing out when it comes to trading in rights entitlement (RE). Sebi last year introduced trading in REs. Under this, an investor eligible to subscribe to a rights issue can sell the entitlement. The buyer of the RE then gains the ticket to apply in the rights issue. Broking industry officials say investors are buying REs but not applying in the rights issue. “Many retail investors buy REs without knowing that the value of REs will be zero if they don't apply. Since May 2020 our clients have lost about Rs 10 crore by buying REs and not applying,” tweeted Nithin Kamath, Founder & CEO, Zerodha, India’s largest brokerage.