NMDC FPO which was an offer by sale by the Government of India received the required subscription and statistically record that the issue was subscribed 1.25 times. It however failed to get the requisite support from the retail and HNI’s for whom the issue had a reservation of 35% and 15% respectively.  What is alarming is that even with a discount of 5% to retail investors and a discount to the current market price of 25% at the lower end of the price band on the day that the price band was announced, retail simply did not bite. It may be noted that the closing market price of NMDC on Monday the 8th of March was Rs 400.60 and the price band announced that evening was Rs 300-350.

During the course of the week the price has come down from Rs 400.60 on Monday the 8th of March to Rs 362.70 on Friday, a fall of Rs 37.90 or 9.46%. The entire book has been built at the lower end of the price band of Rs 300, which means that the retail investor would be allotted shares at Rs 285 while other categories such as QIB’s and HNI’s would be allotted at Rs 300.

The big subscriber to the issue whether willing or unwilling, was LIC of India. Unconfirmed reports say that they have put in a bid for Rs 6000 crs which is roughly 60% of the issue size of Rs 9967 crs at the lower end of the price band. Others who put in bids included some PSU banks and UTI. It is also believed that TISCO and steel baron Mittal have also subscribed to the issue.

The one important message from this IPO which is loud and clear for all to understand is that investors of all categories wish to make money from an issue. If they believe that there is no money on the table they will not subscribe, irrespective of the pedigree of the issue and the issuer. In the past we have seen that small issues have raised subscription for over 50 to 100 times the shares offered where investors believe there is value on the table. A case in point is ARSS Infrastructure, Man Infraconstruction and just recently DQ Entertainment. I believe that this should be considered in future pricing of IPO’s.

With shares available to all categories at Rs 300 and to retail investors at Rs 285, shares of NMDC are likely to be under pressure going forward. Sooner than later the current market price and the issue price would have to converge and the only way that can happen is if the current prices reduce.

One hopes that future offerings will consider public views and have the same incorporated in pricing. This can only be achieved if merchant bankers and promoters bring about reasonable and realistic pricing.