Issue Stands Withdrawn
Galaxy Surfactants Limited which had tapped the capital markets with its IPO for 59.3 lakh shares in a price band of Rs 325-340 has failed to receive adequate response from QIB’s. The QIB portion which closed for subscription on Wednesday the 18th of May received response for 12,26,400 shares or 59% of the QIB portion. The company had allotted 8,89,500 shares to 3 Anchor Investors at the top end of the price band.
Subsequent to the QIB portion not being subscribed, the Book Running Lead Managers and the Company have decided to withdraw the issue. The total response for the issue with one day to go for non QIB bidders was not satisfactory with the HNI portion subscribed 4% and the Retail portion subscribed 11%. The issue on an overall basis was subscribed 30%.
The withdrawal of the issue brings up two questions. The first which is the more obvious one is WHY? Why did the issue do badly and who is responsible for the same? I believe the answer is also as simple in that the issue was way overpriced. There has rarely been an IPO where almost all analysts, financial journalists and other market intermediaries have liked the company and appreciated the business model. The issue was of valuation and pricing, and the asking price at Rs 325-340 was a clear 20-25% higher than expected. The greed of merchant bankers in earning higher fees or commissions and their implicit faith in their investors at lapping up every issue at any price brought by them is the undoing. The promoter’s greed at wanting higher prices is also there but they are assured the same by the merchant bankers.
The second question that comes up is what next? Will the company again make an attempt or look at private equity for its capital needs. These are questions which will get answered in course of time. For the moment, the issuer of capital M/s Galaxy Surfactants Limited has lost out big time. They have been in the IPO mode, have spent tremendous amount of resources in terms of money and time, and lost out at the fag end. One feels for them and the effect that this would have on their business going forward. One only hopes that a common complaint voiced by people that issues are overpriced, a feeling which has been even endorsed by the Regulator is looked at seriously by Merchant Bankers going forward.
Readers would recall that even this writer at appreciated the business and the company Galaxy Surfactants but was unhappy at the pricing and had written about the same in the issue analysis. The article can be accessed here.
All in all something which is most unfortunate has happened. There are two good things that have certainly happened and one hopes this becomes an example for future companies. One more IPO which would probably have got subscribed in the end with some back to back arrangements and crashed on day one of listing will now not happen. Secondly this may serve as an example of overpricing to future promoters and Merchant Bankers tapping the capital markets.
