PUBLIC ISSUE SE PUBLIC GAAYAB!
Remember that song in Don, the old one with Amitabh Bachchan and Zeenat Aman? “Yeh hai Bambai nagariya tu dekh babua”. In that song, the lyrics poke fun at the various funny names of Mumbai – “bandar nahi hai phir bhi naam hai Bandra, Churchgate mein church hai lapata!”
That seems to be the exact description of the primary markets scenario in India today. Public issue se public hai gaayab. Yet, like Bandra and Churchgate, we are forced to call it a public issue!
What exactly is happening in the primary markets? The investors just do not seem to want to invest. There are no takers for the IPO forms and the usually active grey market seems to have got the blues. Take a look at some of the allotment basis of some of the recently concluded IPOs and that would give an indication of how tough the scene actually is in the primary markets.
J Kumar Infraprojects managed to get through but it had 11 applications from QIBs. 11 applications? (QIBs include financial institutions, commercial banks, mutual funds, FIIs, venture capital funds, pension funds, and insurance companies). Now as per SEBI's Disclosure and Investor Protection Guidelines, it is prescribed that a minimum of 50% of any net offer to the public be allotted to QIBs, if the IPO is done via the book-building route. So doesn’t this mean that 50% of the IPO of this company has been mopped up by just 11 applications?
There were 40 applications from Non Institutional Investors (NIIs), mainly constituting of the HNI category of which two applications were rejected and only 38 were successful applicants. 15% of the net issue as per the rules has to be allotted to NIIs. In the Retail Investors (RIs) category, of the 12,134 applications, there were 10,954 who got allotments. RIs are those who put in application for shares for the aggregate value of Rs.1 lakh and at least 35% of the net issue is allocated on a proportionate basis to RIs.
Then there was the IPO of Cords Cable Industries. In its IPO, there were 30 applications from QIBs, 65 applications from NIIs of which 57 got allotments and in the RIs category, of 10,456 applications made just 8,232 got allotments.
OnMobile Global was better amongst the lot with 94 applications from QIBs, 128 applications from NIIs of which 119 were successful and RIs category was the best amongst this entire lot, with 37,516 applications of which 36,462 were successful.
KNR Constructions has 22 applications from QIBs, 28 from NIIs of which 10 got rejected and 5,847 RIs applied of which 5,745 were successful. The poor response to the issue forced the company to allot shares at the lower price band of Rs.170 per share. What is very poignant to note here is that of the total issue of 78,74,570 shares, there is one single application in the NIIs category who has applied for 27,77,775 shares! Can we know who is this brave-hearted individual to have invested for almost 35% of the total issue?
These statistics clearly reveal that there are really not many “real” takers and the way in which these various categories have been filled in, they seem more “managed” than anything else. It would be interesting to know as to who exactly are these 11 applications in QIBs in J Kumar and 38 applications from NIIs? And despite this, the issue sailed through. Logically, could this be possible? There was talk that some of the IPOs having closed recently have offered discount in cash, to the prospective investors, to enable them to subscribe the issue at the upper band.
While pondering on this, we got to know through market grapevine that in some cities of Gujarat, IPO applications management itself is a big business for many. What happens is that these “brokers” charge 5% of the application amount, per application. It is also rumoured that discounts or better known professionally as “mobilizing fee”, to the tune of 12% to 22% has been offered to have the requisite amount of subscription, to HNI and QIB investors. In some cases there are also rumours of QIBs charging 1.5% to 2% of the amount for merely lending their names.
And looking at the basis of allotments in some of the recent issues, somehow all these rumours seem to make a lot of sense. Truth always shines through anything dark and here, the truth emerging is that investors for now, have taken a break from IPOs and if these IPOs are still getting subscribed, then that’s where one needs to dig more!
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