IPOs: We're issuing demerit points
Please excuse our cynicism, but we've grown a little tired of the way issue managers push up the issue prices of companies they are bringing to market. The way they do this is entirely legal: allocate most of the issue to fund managers and others, the so-called placees, and reserve just a tiny number of stocks for the public. Invariably, the demand for the public tranche far outweighs supply, which assures the company and issue managers that there's plenty of demand left over for listing day. As a result, the share price goes up and there's good reason to sip champagne by the close of trade.
But we think this common practice distorts the market by creating the false impression there is huge demand for a stock, when actually there is just huge demand for the tiny number of shares reserved for the investing public. The rising tide lifts the price of all the shares of that company.
Some examples:
Dynamic Colours
Issue: 64.5 mln shares
Public: 3.3 mln shares
That's 5.1% of the total issue. Given that 91 mln shares were bid for by the public, there was clearly huge surplus demand.
The stock hasn't held onto its 21.5 cent issue price, instead falling to around 15 cents.
The issue manager was UOB Asia.
Yongmao Holdings
Issue: 111.55 mln shares
Public: 3.8 mln shares
That's just 3.4% of the total issue.
The issue manager was CIMB-GK Securities.
Centraland Ltd.
Issue: 245 mln shares
Public: 5 mln shares
That's a ratio of just 2%.
The stock is a good ten cents above its issue price of 35 cents.
First Resources
Issue: 225 mln shares
Public: 3 mln shares
That's just 1.3% of the total issue.
There were applications (=demand) for 244 mln shares from the public, but only 3 mln were on offer to them.
The issue manager was Citigroup Global Markets Singapore Pte Ltd.
Surprise, surprise, the stock debuted above S$1.20 and has been riding on the wave of demand eversince.
So, henceforth in our IPO Briefings, we're going to allocate demerit points to those companies where the public tranche is so amazingly tiny it has a capillary effect on the listing - where the stockprice is magically pushed up by huge demand chasing a tiny fraction of the overall issue, thereby raising "all boats".
Our rating scale will be as follows:
But that's fine.
This index is for the rest of us, who usually miss out.
Mark Laudi, who is unlikely to subscribe to shares under these circumstances.
But we think this common practice distorts the market by creating the false impression there is huge demand for a stock, when actually there is just huge demand for the tiny number of shares reserved for the investing public. The rising tide lifts the price of all the shares of that company.
Some examples:
Dynamic Colours
Issue: 64.5 mln shares
Public: 3.3 mln shares
That's 5.1% of the total issue. Given that 91 mln shares were bid for by the public, there was clearly huge surplus demand.
The stock hasn't held onto its 21.5 cent issue price, instead falling to around 15 cents.
The issue manager was UOB Asia.
Yongmao Holdings
Issue: 111.55 mln shares
Public: 3.8 mln shares
That's just 3.4% of the total issue.
The issue manager was CIMB-GK Securities.
Centraland Ltd.
Issue: 245 mln shares
Public: 5 mln shares
That's a ratio of just 2%.
The stock is a good ten cents above its issue price of 35 cents.
First Resources
Issue: 225 mln shares
Public: 3 mln shares
That's just 1.3% of the total issue.
There were applications (=demand) for 244 mln shares from the public, but only 3 mln were on offer to them.
The issue manager was Citigroup Global Markets Singapore Pte Ltd.
Surprise, surprise, the stock debuted above S$1.20 and has been riding on the wave of demand eversince.
So, henceforth in our IPO Briefings, we're going to allocate demerit points to those companies where the public tranche is so amazingly tiny it has a capillary effect on the listing - where the stockprice is magically pushed up by huge demand chasing a tiny fraction of the overall issue, thereby raising "all boats".
Our rating scale will be as follows:
<2% = 5 demerit pointsThe only problem, of course, is that neither companies, nor issue managers, and a fair few "early birds" who secure shares during the IPO and watch the price rise, aren't really going to care.
2%-3% = 4 demerit points
3%-4% = 3 demerit points
4%-5% = 2 demerit points
5%-6% = 1 demerit point
According to this system:
Dynamic Colours would receive 1 demerit point
Yongmao = 3 demerit points
Centraland = 4 demerit points, and
First Resources = a full 5 demerit points
But that's fine.
This index is for the rest of us, who usually miss out.
Mark Laudi, who is unlikely to subscribe to shares under these circumstances.
Labels: Centraland, Dynamic Colours, First Resources, Initial Public Offers, IPO, Yongmao
Trusts for everything these days, evident by...
First properties, then Ships, Airplanes, now...Water trusts.
That's right, the market got word that Hyflux Water Trust will be making its debut on the Singapore Exchange in the not too distant future. Let me jog your memory to a prior blog entry from October:
http://investorcentral.blogspot.com/search?q=trust+me
Granted I did forget water in the mix there with trains and planes and other forms of trusts, but this is something I find a very interesting concept and offer, and, like I said back in October, I really think it is not going to stop here with just water. Hyflux has been on a tear recently securing a number of projects around the world so I'm not really surprised that they would list a trust. But this trend of "trusts" listing on the exchange I think is something that is going to continue and probably get even more creative just besides ships, property and water.
What do you think about a water trust? Let us know your thoughts and sound off in the comments section below.
Curtis Bergh
That's right, the market got word that Hyflux Water Trust will be making its debut on the Singapore Exchange in the not too distant future. Let me jog your memory to a prior blog entry from October:
http://investorcentral.blogspot.com/search?q=trust+me
Granted I did forget water in the mix there with trains and planes and other forms of trusts, but this is something I find a very interesting concept and offer, and, like I said back in October, I really think it is not going to stop here with just water. Hyflux has been on a tear recently securing a number of projects around the world so I'm not really surprised that they would list a trust. But this trend of "trusts" listing on the exchange I think is something that is going to continue and probably get even more creative just besides ships, property and water.
What do you think about a water trust? Let us know your thoughts and sound off in the comments section below.
Curtis Bergh
Labels: Hyflux, Hyflux Water Trust, IPO
Uni-Asia: Why was it listed so cheaply?
The first thing that strikes you about Uni-Asia is not just the big fluctuations in its shareprice since listing August 17, but what now seems like an incredibly low price that it fetched during the listing process. It offered 65.4 mln shares at 55 cents, giving it a price-to-book ratio of just 1.06x, and a price-to-earnings ratio of 5.5x. When average volumes hit 36 mln, and the stock reached an intraday record of S$2.79, it was trading at a P/B ratio of around 4x, and a P/E ratio of around 22x.
Now, I'm not going to comment on the investigation by the Singapore Exchange into possible price manipulation, which was called for by 33 retail investors who had gone to see the Securities Investors Association (Singapore) about their concerns. I do not profess to have any knowledge of whether there was any price manipulation or not. The company has also said it also doesn't have any knowledge of what caused the price to fluctuate so much.
But it sure seems strange that they let the stock go so cheaply in the first place. For the answer to this question we have to go back to the original prospectus, in which they say:
In relation to the existing major shareholders, the prospectus has this to say:
These have given their assurance (page 57) that they would not be selling any shares for six months from listing – a time period which has not yet expired. So even if they did give away the shares too cheaply during the IPO (but why would they do this?) they would still not be permitted to sell the shares at this time. At worst, it seems, the shares were just "coming off a low base".
What is your theory?
Mark Laudi
To comment on this blog, visit the Investor Central Blog.
Watch the BlogCast on video
Now, I'm not going to comment on the investigation by the Singapore Exchange into possible price manipulation, which was called for by 33 retail investors who had gone to see the Securities Investors Association (Singapore) about their concerns. I do not profess to have any knowledge of whether there was any price manipulation or not. The company has also said it also doesn't have any knowledge of what caused the price to fluctuate so much.
But it sure seems strange that they let the stock go so cheaply in the first place. For the answer to this question we have to go back to the original prospectus, in which they say:
Our Company presently has no intention of purchasing our own Shares after the listing. However, if we decide to do so later, we will seek our Shareholders’ approval in accordance with our Articles and the rules of the SGX-ST.
Our Company will make prompt public announcement of any such share purchase and has also given an undertaking to the SGX-ST to comply with all requirements that the SGX-ST may impose in the event of any such share purchase.
In relation to the existing major shareholders, the prospectus has this to say:
Uni-Asia was established in Hong Kong in 1997 by founders Motokuni Yamashiro, Kazuhiko Yoshida, Michio Tanamoto and Takanobu Himori who were Japanese bankers. Each of the founders has over 25 years experience in the banking industry working in corporate loan syndication and structured finance arrangement. Mr. Himori left our Company in March 2004. The other founders continue to lead the business and as at the Latest Practicable Date, they own, directly and indirectly, a significant aggregate equity interest in Uni-Asia of approximately 23.9%.
These have given their assurance (page 57) that they would not be selling any shares for six months from listing – a time period which has not yet expired. So even if they did give away the shares too cheaply during the IPO (but why would they do this?) they would still not be permitted to sell the shares at this time. At worst, it seems, the shares were just "coming off a low base".
What is your theory?
Mark Laudi
To comment on this blog, visit the Investor Central Blog.
Watch the BlogCast on video
Labels: IPO, Singapore Exchange, Uni-Asia
DBS: Hey? Whataya' doin'?
Yes, I know I spelled that out in a very New Jersey, Tony Soprano-esque accent to pay homage to the show that ended Sunday night in the states. The irony is, I watched maybe 4 episodes total in my life but I feel like I know the entire plot because it was all my colleagues talked about back in the United States around the water cooler on Monday mornings.
So, today's blog has to focus on the story in The Straits Times about DBS raising the fee from $1 to $2 for ATM and online transactions for IPO's. Now, I took particular interest in this story because DBS's move is stupid I think, but, I can also see the strategy behind it as some IPO's you are only able to apply to via DBS and not the other banks.
So to drive people and generate more business, they are capitalizing off of that by making a quick buck or two. I don't believe in making a quick buck on something like this as I think it residually hurts your image and brand if your seen as crossing the line of being too monopolistic that you are taking advantage of people instead of capitalizing of something you should be, just like everyone else. DBS was already collecting a fee, but now people may take them more as money hungry hawks for stuff like this given the other banks have not raised their fees.
While it is good business to collect a fee and make money in some cases because they are the exclusive route for some IPOs that people will apply to, it's when they unilaterally do something - something that they have done in this case - that drives people away. Case in point, some guy actually called up and complained to The Straits Times about this 100% increase. If you have upset people that much where it actually drives them to do something like that, you've got issues.
People will switch to the other banks because of this $1 hike, which I think is such a negligible cost difference. Crazy isn't it? Consumers are that price sensitive here they will switch banks. Brand loyalty...fourgedaboudit, doesn't exist as strongly here as it does in other markets around the world (unless, you are selling ladies cosmetics which have an almost cult like following in Asia Pacific where in this case brand loyalty is unusually high).
Either way around, this move is just beyond me as it only gives the competition stronger ground and reason to stand on to undercut DBS on both price and service.
Either way...interesting story.
Curtis Bergh
Labels: DBS, Fees, IPO, Tony Soprano
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