Ortel Communications Limited had tapped the capital markets with its issue for 1.2 cr shares which consisted of a fresh issue of 60 lac shares and an offer for sale by its investor of 60 lac shares. The price band was Rs 181-190. As the company has not been making profits the QIB portion was 75% and the HNI and retail portions 15% and 10% respectively. The company reserved allotment of upto 60% of the QIB bucket for allotment to anchor investors.
At the road show the price band was confidently defended as having been arrived at after intense discussion with various stake holders from the QIB category. 25% of the total IPO is meant for HNI and retail do not matter, but roadshows are done entirely for them. In case their views are completely irrelevant the idea of a roadshow should be changed to a mere marketing exercise where the company makes its case and that’s it.
Anyway the response to the anchor book was lukewarm and for any allocation to happen to anchor investors there must be a minimum of two investors. The company managed to rope in or cajole or used some influence to get Axis mutual fund to subscribe to 9 lac shares and ICICI Prudential to 16.57 lac shares making a total of 25.57 lac shares against a provision of upto 54 lac shares. Therefore against 60% of the QIB book a mere 28.11% was allotted. The price band was Rs 181-190 and the allotment price to these entities with whom extensive discussion during road shows was done and price band finalised, chose to apply at the lowest price possible of Rs 181. Anyhow anchor book was there otherwise it would have been egg on the face of the company and merchant banker.
After three days of hectic lobbying to get the issue subscribed, the QIB portion received bids for a total of 64.92 lac shares which meant that the original QIB portion of 90 lac shares was fully subscribed and bids for a total of 90.57 lac shares received which made the issuetechnicallysuccessful in garnering subscription. The HNI category subscribed to 16,350 shares against 18 lac bucket and retail was more adventurous subscribing to 4.67 lac shares against 12 lac bucket. As per SEBI provisions the shortfall would be deducted from the selling shareholders bucket and instead of 60 lacs that he proposed to sell it would be reduced to 36.8 lac shares approx.
The questions raised from the way this IPO happened is there any sanctity to the regular comment by merchant bankers on price discovery being made after extensive roadshows or is just a figure of speech? Secondly was the poor response to the price band fixed or was it the poor fundamentals of the business where a company in the business activity of providing cable connection just does not make money. We have the likes of Den Network and Hathway cables which are struggling after being around for so many years and having presence in thickly populated towns and metro?
Even though I am seeking answers to my questions there will be none but atleast the smart retail and HNI category are learning. Every issue that QIB subscribe is not good and also that merchant bankers use investors and the investing class to just sell their issue. Each issue for them is a mere transaction and investors the tool to achieve that. There is nothing like relationship or commitment or the compassion that I overpriced the issue. “BUYER BEWARE” is the only principle that works here.
I hope the line-up of issues sees merchant bankers using discretion to be a little more realistic in pricing going forward. It’s a bad beginning for the revival of the primary market.
BURA NA MANO HOLI HAI.