Sometime earlier, this columnist had pointed out a potential Catch 22 in the manner in which the PSU IPOs were structured and scheduled. |
The point: lots of big issues are being bunched together in a short space of time, and the shares are being offered at discount to market in some of the cases where listing already exists. |
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So, the effect on share prices should be negative. If the issues were successful, prices would fall. If the issues were unsuccessful, it would be accounted a systems failure in the primary market and of course, that would trigger a fall in the secondary market. |
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Predicting this required little intuition. It's a simple matter of pricing and weighted averages. A listed share costs say 100, and you offer another share at an IPO price of, say, 75. |
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Post-listing there will be two shares that each cost about 88. If two shares are offered at 75 in IPO, post-listing three shares will be priced around 84 each. |
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Unless the market suddenly shoots up between IPO and listing, pricing will follow this pattern, given discounts. Thus it makes sense to apply for the IPO and simultaneously sell pre-IPO holdings. |
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That is what rational investors will do. There would have to be compelling, non-economic reasons for not following this strategy. |
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The bunching of several issues concentrates the effect of selling. Apart from extant shareholders who are forced out by the IPO-terms, wannabe subscribers will sell holdings in other companies to raise cash to invest. Add the advance tax burdens of March, which always independently cause a cash crunch. |
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The scheduling thus near-enough guarantees the secondary market being hit by a bearish wave. This is certainly a matter of concern for the government. |
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It could lead to either systems failure in the IPOs or lower than expected acccruals. The dip in the secondary market may also remove some of the sheen from India-Shining. |
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However, the bearishness should not cause paranoia. A shareholder surely has the right to exit a company for any reason. |
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Since the government is offering shareholders in PSUs good and sufficient reasons to exit through the very method of structuring and scheduling, why is it surprised if they choose to act rationally? |
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In his previous dealings as a minister, Mr Shourie has earned the respect of the business community due to his rational, transparent approach to thorny issues in telecom and disinvestment. |
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Obviously the pressure of approaching elections and the huge IPO commitments is now getting to him if he is making dark statements about knowing who is pulling down the market by selling. |
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Of course he knows "" the sellers have been quite open about it, offering their stocks onscreen. They haven't broken any laws nor trespassed against any hidden covenant. |
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The IPOs highlight Sarkari ineptness at managing market forces and an arrogant belief that the laws of rational economics should somehow not apply to government. |
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If a private company offered shares in this fashion, there would indeed have been a wave of selling and perhaps even outright accusations of mistreating minority shareholders. Nobody would have even raised an eyebrow about a mass exit. Why would the same standards not apply to government IPOs? |
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