Navkar Corporation Limted which had tapped the capital markets with its IPO for Rs 600 crs which consisted of a fresh issue of Rs 510 crs and an offer for sale of Rs 90crs in a price band of Rs 147-155 was subscribed. The issue received satisfactory response from QIB’s which subscribed the issue 6.47 times and retail portion subscribed 2.85 times. What was surprising and shocking was the tepid response from HNI or the leveraged investor which remained undersubscribed at a mere 0.90 times. What went wrong?
| Bucket Size | Shares Applied for | Times oversubscribed | |
| QIB | 8163266 | 52842325 | 6.47 |
| HNI | 6122449 | 5486250 | 0.90 |
| Retail | 14285714 | 23156820 | 1.62 |
| Total | 28571429 | 81485395 | 2.85 |
The HNI portion was to be subscribed over 200 times and the grey market had become active after the road show in Mumbai last week. It was widely believed that even though the issue seemed expensive and was overvalued, the response would be overwhelming and the cost of funding or leverage would ensure that all who applied would make money. Things did not happen as expected. The premium began to fall last week itself and the margin payable for funding began to rise. From the expected 2% margin it rose five fold to double digits and made the whole exercise futile as no HNI wants to invest with a margin of 10% as the subscription levels drop. The whole game is multiple times subscription, virtually thin margins of just about one or two percent and create a hype with an active grey market so everything just sails through.
All of this fell flat and though you had leading merchant bankers well known for creating the buzz about issues, things did not work to plan. The agitation in Ahmedabad did not help matters and all deals struck in Gujarat were cancelled. The poor listing of another high buzz issue on the last day of subscription of Navkar dampened the sentiment even further.
The message to take home and bear in mind is that the greed of promoters and helplessness of merchant bankers in restraining high prices is the bane of the secondary market. With money having being made in the earlier issues, a couple of them will have to fail, before prices again become somewhat affordable.
Clearly here was a case of overhyped and aggressively priced issue just failing to deliver. Let’s hope the community learns from this example.
