Investors lose heavily in high-profile IPOs

Investors lose heavily in high-profile IPOs
GEORGE MATHEW

MUMBAI, FEB 11: Investors in some high-profile initial public offerings (IPOs) have now realised: everything that shines is not gold. Many companies and promoters had come out with IPOs at high premiums in the last one year, but most of them are quoting at huge discounts to their offer prices, leading to a huge erosion in the wealth of investors.

In fact, out of 29 IPOs which hit the market in the last one year, 27 IPOs have disappointed investors. The fall in the share prices of nearly a dozen high-profile IPOs below their offer prices reveals that things have not improved in the primary market."Most of them came to the market at a high premium. They also made tall claims about their prospects. But they have failed in giving a decent return to the investing public," said an investor.

Tips Industries is a classic example. The IPO of Tips which created a storm was offered at Rs 325 per share. The share is quoting at half of the offer price -- at Rs 177 -- on the stock exchanges. Pritish Nandy Communications has also fallen steeply below the offer price, much to the chagrin of investors. "Promoters and book runners cannot blame it on the depression in the stock market. Sensex has been rising in the last a few weeks, but these IPOs are quoting at huge discounts," said a fund manager.

The slump in the share prices of recently listed IPOs was led by entertainment companies. One reason could be the arrest of diamond exporter/film financier Bharat Shah who, according to market sources, is believed to have invested heavily in entertainment shares. It is also a fact that the financial performance of other entertainment companies like Zee Telefilms did not bring any cheer to investors.

But market experts point out that the share slump is not restricted to media companies. Even infotech and pharma companies also disappointed investors. Infotech company Kale Consultants which offered shares at Rs 120 per share is now quoted at Rs 80, a discount of 33 per cent. Geometric Software which came out with an IPO at Rs 300 has fallen to Rs 122, showing a fall of 59 per cent.

"The market regulator SEBI should ensure that companies don't take investors for a ride. It seems promoters and merchant bankers misused the bookbuilding route to raise resources. They fixed high premium without any justification. SEBI should scrap the book-building system. It's being manipulated by promoters and merchant bankers," said Pradeep Bhavnani, president, National Association of Small Investors (NASI).

Things are not as bad as in the 1994-96 period when hundreds of promoters raised money from the public and disappeared from the scene. The fact that companies and promoters are still taking advantage -- or is it exploiting the loopholes -- of the capital market is something that the SEBI and the government should seriously consider.

The bookbuilding route, according to Prime Database, gained increasing ground -- among promoters and merchant bankers -- during the year. This happened at a time when investors were in the dark about the intricacies of the bookbuilding route and book runners/lead managers and promoters manipulated the system. It may be recalled that the first-ever public equity issue through this route was launched in 1999 by Hughes Software followed by just one more issue (HCL Technologies) in that year.

The year 2000 witnessed as many as 13 companies using this route of which the Rs 100 crore plus issues included Hughes Tele.com (Rs 749 crore), Cadila (Rs 372 crore), Shree Rama Multi-Tech (Rs 164 crore), Mascot Systems (Rs 144 crore) and Mukta Arts (Rs 100 crore).

With the market now gaining ground and Sensex rising by over 500 points in the last two months, companies and promoters are all set to cash in on the pre-budget rally. If the current upward trend at the secondary market continues even after the budget, the primary market might see a plethora of issues. Some of them are likely to be dud issues. As many as 64 companies with IPO plans are holdig the Sebi acknowledgement card, while 16 are awaiting the Sebi's approval, says Prithvi Haldea of Prime Database.

"Although there are some genuine companies planning to issue IPOs, some shady promoters are also in the fray. Investors have already burnt their fingers in some of the high premium issues in the last one year," said an investor. In fact, many companies are in a desperate situation to provide an exit route to venture capital funds. For this, listing on the bourses seems to be the only viable option.