The heading of my last week’s article was “China and our Primary Markets”. How apt it turned out to be where a mere 5% fall on Monday and a net 3.5% over the week knocked the wind out of the primary markets. The listing of Power Mech was at a discount of over 8% even though the issue was subscribed by HNI’s by over 133 times. Where did the demand go and why this discount? Simply because the cost of the leveraged HNI was about Rs 112-115 and the moment the share traded at a discount, panic set in and investors (leveraged HNI’s) dumped the stock. A good share became a bad one.
Navkar Corporation where people were talking of 200 times subscription by HNI’s failed to get subscribed in the HNI category even once. The reason as simple as that the margin being asked by financers was a hefty 10% or over and the leveraged HNI wanted to pay no more than 2%.
Pennar engineered Products had received good anchor support but failed to find retail support.
Shree PushkarChemiocals and Fertilisers Limited was fully subscribed and there was no leveraged investor here.
Issue from Prabhat Dairy Limited did not receive anchor support.
Sadbhav Infrastructure Project Limited which had opened its books for anchor subscription was fully subscribed.
Why do issues fail or why this big disconnect? There are primarily two reasons for the same. Firstly the promoters, P.E.Investors and merchant bankers price the issue very aggressively and also factor in some more percentage points rise in the market when pricing the issue. Secondly the leveraged investor distorts the demand for an issue and easy funding at ridiculous margins creates a false book therefore demand, and on the flip side when things backfire, interest or funding cost becomes the cause of the issue failing on listing. These same people the leveraged investor ensure that there is a grey market working and active to ensure an exit for them. To facilitate this, the merchant banker and his NBFC directly or indirectly act as the funding agent to these HNI’s who bid upto one time of the whole issue and are directly or indirectly responsible for the success or failure of the issue.
What is the solution? The merchant bankers are the people who are that part of the community who need to come back to the investor class after every issue, have to become more responsible and accountable. They have to tone down expectations and show restraint in pricing. Second SEBI must with immediate effect allow HNI’s to bid just for their bucket size. By doing this they will achieve three things. First the undesired grey market activities will cease. Second distortion of demand will not happen. Third there would be a fair market on listing and not one driven by cost of funding of the leveraged investor.
I urge SEBI to look into the holding pattern of companies which have gone public 72 hours after listing. I say that not one leveraged investor remains a shareholder. What are we therefore encouraging? Speculation on someone else’s funding and complete distortion of demand. I hope my suggestions do not fall on deaf years and merchant bankers realise what is happening to the primary market.
Let us all hope and pray that sanity prevails.
