Market Watch | The IPO party is all but over

Updated on Feb 08, 2008 08:49 PM IST
If you think this kind of “underhand” dealing is the preserve of the small promoter and high net worth individual, you are in for a surprise, writes Udayan Mukherjee.
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I feel bad for Habil Khorakiwalla. And for Shravan Gupta of Emaar. Ill advised by their investment bankers, not once but twice, their stocks have the dubious distinction of being the first sizeable IPOs to be pulled out in this bull run. It was coming, just a question of which one would be the first. This probably marks the beginning of the long overdue purging of the Indian primary market. Unless promoters and bankers have a serious rethink on their approach, you will see more issues bombing.

While Wockhardt and Emaar will get spoken about, what will not catch your eye is some of these issues which don't receive any bids till the last date of subscription but somehow manage to "scrape through" mysteriously in the last hour before the issue closes. I think there is mischief afoot there. Without mentioning names, am almost sure that promoters and bankers collude to get high networth investors bid for these issues with the understanding that the stock will come to them at a substantial discount and the discount will be refunded in cash to them. Thus an unofficial reduction in the price is worked out for select investors who bail the issue out. I also have no doubt that the regulators know that this is the case.

If you think this kind of “underhand” dealing is the preserve of the small promoter and high net worth individual, you are in for a surprise. The “relationship” between large promoters and bluechip institutional investors is even more insidious and crafty. For many institutions, the line between the investor and investment banker are very blurred. Ask yourself this: if an influential promoter of a multibillion dollar enterprise calls and asks an investment bank to subscribe to/support his stock, with the tacit understanding of making it up to him at a later stage, would he be refused? No way. This is true not just for IPOs but for many of these wonderful deals which get announced everyday; deals that are supposed to set “valuation benchmarks” for stocks. I wouldn't be so sure that all these deals don't come with a payback buffer that inflates the valuation, for the consumption of the world at large. Ladies and gentlemen, welcome to the dirty world of finance where nothing is quite what it seems. A dose of cynicism may be good for your financial health.

(Udayan Mukherjee is the Executive Editor, CNBC-TV18)

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