Investors have lost faith in IPOs
THURSDAY, 14 JULY 2011 00:00
By Keishara Perera
Most of the investors have now lost trust in present Initial Public Offerings (IPOs), and will be extra cautious when investing in future IPOs, capital market stakeholders told Mirror Business.
They are of the view that a large percentage of discounts offered at Private Placements has discouraged public investments and brought down the confidence in the entire system.
Ravi Abeysuriya, CEO Herayamila Securities said, he had been very critical about private placements from the begining.
“One has to be very careful in investing in IPOs, and it is advisable that they obtain professional advice when doing so,” he stressed.
Abeysuriya said that people will invest based on their risk taking ability, and they may even avoid IPOs, as there are several other investment options.
“I’m pretty sure investors would have learned their lessons by now, and will not be rushing in to buy stocks without analyzing all the risks involved,” Abeysuriya added. “I also feel that there will not be much money flooding in as in previous IPOs such as the Union Bank IPO which was oversubscribed by record number of times.”
Meanwhile Hijaz Suhair, Asst. Manager Corporate Advisory and Capital Markets, Merchant Bank of Sri Lanka said, Private Placements have had a bad influence on both the Expolanka and Softlogic IPOs.
“Expolanka had the potential, but I guess the market didn’t see it because of the very low price in Private Placements with huge discounts. That’s why it didn’t stay above the IPO price,” he explained.
Suhair went on to say that companies need to look in the valuation of stocks and make sure they are not overpriced at IPOs. “Softlogic was a little overpriced IPO, where private holders wanted to sell at a lower price than the IPO price,” he noted.
According to Suhair, recommendations about stocks should be made more responsibly and merely saying “a good buy” to each and every IPO is not what should be done.
Good lesson for
companies – Regulator
What is happening in the Colombo bourse at the moment will be a good lesson for companies planning Initial Public Offerings in the future, a top Securities and Exchange Commission (SEC) official told Mirror Business.
“This definitely is a good lesson for the companies who will be coming into the market. It will prevent them over-pricing their share issues. Although IPOs are getting aMeanwhile Suhair said that future Private Placements are going to be highly unpopular and companies should be looking to create more value after the IPOs. “IPOs need to give value to the public and there should be discounts towards the public in order to encourage more public investment,” he stressed. “Else, people who invest with little knowledge will never turn to stocks again, if the experience was bitter,” Suhair added.
Speaking to Mirror Business on the same issue, Channa De Silva, CEO, LR Global Fund said, if there is no place for investors to benefit, they will stay away from the stock market. “Even in the case of a good IPO, investors will do the same. When a stock falls below the IPO price, investors tend to remember it for a long time.”
“What I feel now is that investors will not be rushing for IPOs, and instead they will be very cautious. The sudden urge for IPOs will simmer down for the next 6 months and there will not be a huge hype as there was in the recent past,” De Silva said.
However he went on to say that volatility is part and parcel of the stock market, and if investors trust the share, they should hold on to it, since the stock may rise provided the companies are strong. “Don’t rush to sell, just because the stock has fallen below the IPO price on the first day. Company stocks have the ability to emerge again,” he emphasized.