The week gone by had plenty of drama and action as far as the primary markets were concerned. One saw the listing of one NCD, an IPO and two IPO’s opened and closed during the week. Considering the weakness in the secondary markets this was lot of action for one week. Let us look at each of these issues.

India Infoline NCD issue.

The company had issued bonds with a coupon rate of 11.9% for retail investors who invested upto Rs 5 lacs. The other coupon rates were lower than this. The credit rating of the issue was AA- or (Double A minus). The bonds which were issued at Rs 1000 per bond got hammered on the day of listing and ended trading on day one at Rs 921.35 on the BSE and at Rs 929 on the NSE. There is no logic as to why the price of a bond should fall so sharply on day of listing as they are fixed income instruments and would offer the yield as per the coupon rate. Even if one were to consider the fact that other bond issues were offering marginally higher rates of interest the discount compared to them should have been at Rs 980 considering the appreciation over the life of the bond and the higher rate of interest.

The tragedy of the bond issue was that people applied in the same expecting listing gains as they got in the case of SBI bonds and in the scheme from Shriram Transport. Investors need to understand that bonds are not equity and they have different dynamics. We should see the listing of yet another bond issue this week from Shriram City Union. Currently two bond issues are open from Mannapuram Finance and Muthoot Finance, both of which have similar credit ratings and are in identical businesses of gold loans or finance against used gold jewellery.

The IPO from SRS Limited opened during the week. Incidentally the name SRS stands for “SAB RAHO SAATH” and does not have anything to do with initials of the promoter’s names or anything like that. The issue opened on Tuesday the 23rd of August and closed on Friday the 26th of August. The issue was for 3.5 cr shares in a price band of Rs 58-65. The company is a diversified company involved in jewellery, cash and carry, retail outlets, food courts and cinema exhibition. Almost all there outlets are in tier 2 and tier 3 towns. The bulk of the business currently comes from wholesale or non-retail which post this outlet would change to some extent. The broad object of the issue is to raise money to increase the retail presence where margins are significantly higher.

The issue was expensive and the asking price at a PE multiple of 21.56 at the lower end of the price band to 24.16 at the upper end was certainly expensive. The result of this in a bad secondary market was that retail investors stayed away from the issue and subscribed their portion a mere 0.32 times. The bulk of the subscription came from the HNI’s who subscribed their portion 5.11 times and thus helped the overall issue get subscribed 1.25 times.

The IPO from TD Power Systems Limited had an anchor allocation to investors on Tuesday the 23rd of August and the issue opened on Wednesday the 24th of August and closed on Friday the 26th of August. The issue price band was Rs 256-261 and the size of the issue was Rs 227 crs. The issue received excellent response from QIB investors and was subscribed 6.52 times. Retail and HNI looking at the market conditions and the fact that the valuation was at a premium to the existing large player like BHEL, decided to stay away and subscribed their quotas a mere 38% each. This shows that the investing public has started taking some rational decisions and one only hopes that this new found wisdom remains and does not disappear once the secondary markets improve.

The IPO which listed on Friday the 26th of August was Tree House which had issued shares in a price band of Rs 135-153 and priced the issue at the lower end of the price band. There was a discount of Rs 6 per share for retail investors, and that prompted retail to jump in to the issue. There was also an active grey market in the share which helped investors to lock in profits even before the share listed. The net result was that retail subscribed their quota 2.76 times when the overall issue was subscribed a mere 1.85 times.

Due to the grey market activities the share was on firm ground for the first half of the day and then simply gave way. The share had touched a high of Rs 161.50 during the day but then fell sharply and recorded a low of Rs 104.15 before closing at Rs 116.55, a net loss of Rs 18.45 or 13.67%.

All this goes to show that the best of issues can go wrong when the times are bad and promoters and merchant bankers need to price the issues at reasonable levels where there is some money left on the table for investors. We all know that when the going is good these entities make the most of it, therefore when things are bad the least they can do is price it just about fair value if not at a discount.

One hopes that like the impasse in Delhi and Parliament over corruption coming to an amicable settlement, the similar impasse on reasonable pricing between the investors on one side and the merchant bankers and promoters on the other side can also be resolved.