Overpriced IPOs

I am really glad to see that most new IPOs coming in the Indian market have really low retail participation. I am happy about that because every IPO has been very aggressively priced of late, and in my opinion there aren’t many good deals for the investing public. In fact, I can’t remember the last IPO that was priced decently.

This is true of private as well as government companies. The just concluded Rural Electrification Corporation (REC) FPO, and the NTPC FPO — both got lukewarm response from retail investors. In fact, it looks like the government has been egging on public sector banks and insurance companies to pick up the slack.

That’s why on most government IPO / FPO subscription numbers – you see low retail participation, but relatively higher institutional participation.

The just concluded Rural Electrification Corporation (REC) FPO was subscribed 0.22 times in the retail segment and 5.51 times in the qualified institutional buyer (QIB) segment.

Here is what the Business Standard had to say about this:

People familiar with the development said state-run Life Insurance Corporation (LIC) put in bids worth Rs 3,000 crore at Rs 205 per share. Source said public sector banks bids for shares worth Rs 1,200 crore, of which Rs 500 crore was bid by State Bank of India and Rs 300 crore by Canara Bank. The highest bid came in at Rs 215, for 214 million shares. Many mutual funds and foreign institutional investors (FIIs) are also in the fray.

Marketmen, however, are not convinced. “Last-day negotiations at the highest level saw the issue being oversubscribed,” said a banker on condition of anonymity. “As with the NTPC FPO, state-owned entities had to chip in for REC. It is anybody’s guess what will happen to NMDC,” he added.

In fact, LIC acquired 2.5% stake in the NTPC FPO that was recently concluded. That offer was priced at just a 5% discount to the market price. No wonder, people were not interested.

I don’t understand what they are trying to achieve here. This is like taking money from one pocket and putting it in another. These are decent companies, and if their offer is priced right, – the public will be interested. It will also act as a deterrent to private companies who don’t have much by the way of a track record, and come out with lofty prices on their offers.

I have a feeling we will see days when these offers are priced right, because state owned banks and LIC can’t keep doing this forever, but who knows when that will happen.

Photo Credit: Cosmic Kitty

5 thoughts on “Overpriced IPOs”

    1. Expecting any government to do the right thing anytime, in any part of the world is probably optimist, but then there is nothing wrong with that – is there? 🙂

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