L&T Finance Holdings limited launched its maiden issue to raise Rs 1,245 crs in a price band of Rs 51-59. The issue received excellent response and the anchor book was done at a price of Rs 56. The environment has become challenging and even though the book was built at Rs 59 the company chose to effectively offer a discount to the now shareholders of the company by pricing the issue at Rs 52.

This should become an eye opener for companies and merchant bankers for the future to price the issue. Here is a company which has its issue subscribed 5.34 times and garners support at the top end of the price band but chooses to price the issue almost at the bottom end of the price band. Against this we have companies which get just about subscribed but price the issue at the top end so that they get some extra money from the public.

A recent example of this is the issue from Bhartiya Global ?Infomedia Limited which was subscribed a mere 2.06 times and did not rteceive a single application from QIB’s priced the issue at the top end of the price band of Rs 82, when the band was Rs 75-82. The net result, the share fell a staggering 62% on day one. Yet another example is that of Readymade Steel Limited which had tapped the capital; markets with an issue in the price band of Rs 90-108. The issue was subscribed a mere 1.68 times with QIB’s subscribing a mere 0.03%. The issue priced at the top end of the price band at Rs 108 and the listing day saw the share fall over 38%.

Very clearly the function of issue pricing is a joint exercise between the promoters of a company and the merchant bankers. Wherever the issue of goodwill and sustainability comes in there would be a soft corner for the investors. I believe this is a shining example which needs to be duplicated by promoters and other merchant bankers to make this market a more healthier place.