Poor retail response to IPOs rings alarm bells

DB Realty’s IPO received just 23,000 applications after the company spent Rs13.50 crore for its ads in The Times of India alone. NTPC’s FPO received just 80,000 applications. This has set the alarm bells ringing for decision makers

Retail investors continue to shun public issues. This has at last created panic among decision makers. The pride of the nation, National Thermal Power Corp (NTPC), managed to get an overall subscription of 1.2 times for its follow-on offer (FPO) with a retail participation of just 16% of the total 42.8 million shares reserved for the retail investors’ category. For its total shares on offer, NTPC received a dismal 80,000 applications from retail investors all over the country. This will be no surprise to the readers of this website. On the day NTPC opened, Moneylife had written that the NTPC issue will not attract retail participation thanks to a variety of reasons (see here). The issue opened on 3rd February.

More than NTPC, the high-profile DB Realty’s initial public offering (IPO) has failed miserably. After spending a whopping Rs13.50 crore for advertisements in the Times of India (ToI) group alone, the DB Realty IPO, which opened on 29th January, received just 23,000 applications for its Rs1,500-crore issue. It received a pathetic 457 applications from high net-worth individuals (HNIs). It is a different matter that even the ToI group advised its readers to stay away from the DB Realty IPO! (http://economictimes.indiatimes.com/features/investors-guide/DB-Realty-IPO-Investors-are-advised-to-stay-away/articleshow/5521419.cms)
The gross and continuous failure of issues to attract retail subscriptions has started ringing alarm bells among decision makers. If this continues, the government’s disinvestment programme will be badly affected. Poor retail participation is the result of years of poor regulation and malpractices by market participants, which have caused equity products to perform very poorly. “It is a crisis situation,” says an IPO expert.

The crisis has been building up over a period of time. Godrej Properties received 18,300 retail applications and 50 from HNI investors for its IPO. JSW Energy received 86,559 retail applications and just 97 from HNIs. MBL Infrastructures received just 3,616 retail applications and only 29 applications from HNIs. Den Networks (Rs195), an associate of Network18, received 3,916 retail applications and 50 from HNIs at the end of October 2009. Aqua Logistics, which was to close on 2nd February, revised its price band downwards and extended the date after failing to attract investors.

The disinterest of employees is another feature of many IPOs. The employee segment of MBL Infrastructures received only 26 applications (0.12% subscription); Astec LifeSciences received 55 employee applications (0.5% subscription), while Euro Multivision had an embarrassing 16 employee applications (0.3% subscription). Even in the case of NTPC, out of the total 42,73,220 shares reserved for the employee category, only 43%(18,73,807) of the shares were subscribed. If employees are unconvinced about a company’s pricing and prospects, how can it attract others?

As the government gets ready to raise Rs30,000 crore through disinvestment of PSU shares, its biggest worry ought to be the vanished retail investor. But regulators and officials are busy fighting turf battles or protecting personal interests. Meanwhile, India's investor population has plummeted from the claimed 20 million (probably exaggerated) in the 1990s to eight million (according to the Swarup Committee report of 2009), and is probably even smaller in reality.
 

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    COMMENTS

    Vandana Gupta

    1 decade ago

    Mybe SEBI and HLCC on Financial Matters chairperson Mr. D. Swarup should recommed to the Govt. that like in Mutual Funds, Merchant Bankers be asked to charge fees from IPO subscribers based on the service and advice they render.

    This seems to be the in thing today.

    Also, they would convince the Govt. that ultimately what is happening in India based on their advice and recommendations will be followed in other parts of the world.

    Shibaji Dash

    1 decade ago

    Based on the experience about the juristic veil being used/abused as a device for laundering unaccounted money in the garb of equity ( recall the mushrooming of ' investment companies' in the early eighties as a prelude to the Harshad Mehta bust and also the Rupal Ben Panchal scam in 2006?), one can not dismiss the overpricing of the non-PSU IPOs as a deliberate pre-meditated two pronged strategy to (i) roll in as much money as can be seduced from the unconnected retail investors and (ii) also simultaneously have the promoters-controlled conduits like their investment companies/other entities like trusts and individuals to subscribe to the IPOs/FPOs and thus such unaccounted money transmuting as equity of the Company that made the IPOs or FPOs.To maximise the kill in case of the FPOs the market is rigged well ahead of the opening date to raise the average rate prior to that date. The PSU IPOs/FPOs appear to have fallen victims of such nexus driven manipulations of the ( private ) corporates nd the (merchant) bankers- in a repeat of the Harshad phenomenon. It is for the investing authorities of the Income Tax Dept. to take a call, much less the regulatory authorities.

    Shibaji Dash

    1 decade ago

    Pity the Govt. , hungry for money to bridge the deficit or for may be other unknown reasons, is using the PSU IPOS/FPOS like merchant bankers not factoring that the merchant bankers in the perception of the investors are a thoroughly discredited lot. Not that the retail investor/common man perceives the political masters any differently. Bankruptcy of thought all over in those in power of any genre.

    Pankaj Namdharani

    1 decade ago

    Do consider the application figures of recent IPO i.e. Infinite Computer Solutions (121000 retail app) and Jubiliant Foods which got good response from Retail. I believe it is more to do with pricing of the IPO and what is left for the investors. Most of the IPO were Overpriced be it NHPC, NTPC, JSW, Adani, pipav, so is the punishment

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