Despite all the Initial Public Offerings (IPO) issued so far being oversubscribed, the lesson for the IPO issuer companies is not that they shouldn’t do a Private Placement (PP) at a price below the IPO price, but that IPOs should not be overpriced, analysts say.
"The Private Placements below IPO price is fine provided that you have a strategic reason for doing so. Those who invested in Softlogic a year ago took a bigger risk, one that paid off quite well for them. However, you can’t always take the public for a ride by overpricing the IPOs. Most of the recent IPOs were way above 15 times earnings which is a very rich multiple. Early post-war IPOs left something on the table for IPO investors. Now there is none,” an analyst said.
He added that those who bought at the recent IPOs bought them knowing well that there was an overhang of PP investors who had bought the share at below the IPO price.
Many analysts say that the ambitious IPO launching companies should be aware that when they issue shares at a multiple of the fairly recently concluded PP prices they will invariably have to face the music.
"The lesson that investors should learn from this is to understand that IPOs are not easy money," Deshan Pushparajah, Head of Capital Markets Capital Alliance said, adding that one needs to do an appraisal prior to investing, same as when investing in the secondary market.
The dismal performance of the Colombo bourse continued as more force selling, panic selling and profit taking caused selling pressure across the board during the past month with analysts saying that both the market indices were pushed further into the red as the highly capitalized banking and diversified sectors suffered heavy losses during this time.
All the money in the market has got held up in IPOs and the public have found that IPOs are a quick way to make a buck. There is a sudden block in cash in the market and the day the IPO shares start trading everyone starts selling to earn short term profts. “As such all recent IPOs have been oversubscribed and on day one of trading there are many sellers trying to get the money back into the market. This results in the market giving negative signals,” another analyst explained.
Shanilka De Silva Research Analyst NWS Holdings noted that force selling seen during the past weeks was a signal from broker firms which needed to comply with the government’s new regulation to have debtors limited to broker firms' share capital. “Therefore brokers were also force selling to reduce debtor balances and giving negative signals to the market,” he added. |
E-mail
