Another myth gets bust. It’s not large, stable, profitable public sector companies’ follow on offering (FPOs) that are attracting investors. It is IPOs of relatively less-known, smaller, private companies.
An analysis of recent market offerings shows investors putting more money in private companies IPOs.
In a span of just seven days, two private IPOs saw huge oversubscriptions. IL&FS Transportation that proposed to raise Rs 700 crore garnered applications worth Rs 22,694 crore, while DQ Entertainment’s Rs 128 crore issue received applications worth Rs 11,028 crore: oversubscriptions of 32 per cent and 86 per cent respectively (See table).
In comparison, the Rs 9,967-crore high-profile mega FPO of NMDC barely managed to get full subscription. Its total applications received: Rs 12,459 crore.
The public issues of power sector giants NTPC and REC also saw feeble response, with subscriptions of 1.24 times and 3.14 times respectively. None of these three got even 30 per cent subscription for the retail part.
“The success of other issues reflect that there is enough appetite in the market and investors are willing to invest,” said Prithvi Haldea, CMD, Prime Database.
Lead managers to public sector FPOs accept pricing was high. “I think the pricing was wrong because there was lot of interest for the FPOs but institutional investors got concerned on the valuations front,” said the head of a lead manager for one of the three PSU FPOs, on condition of anonymity.
Experts feel retail investors park money in IPOs for very high gains. In the case of FPOs, immediate gains are limited to the extent of discount available.
“The government should give higher discounts to attract the retail investor,” said Haldea.
“If the government’s aim is to maximise disinvestment proceeds and increase retail participation, it should sell 65 per cent of the issue size to institutional investors through a separate bidding process, and then offer deep discount for the rest to retail investors,” said a top official of a leading broking firm on condition of anonymity.