Thursday, August 28, 2008

For some, a bubble is forever

This one looks like a googly. What to make of this?

An Indian company [Great Easter Energy Corporation (GEEC) promoted by Y.K.Modi – that is into CNG exploration and production] listed in AIM of LSE in London is now seeking to issue shares in the Indian market. Reportedly a Rs.10 billion issue, 50% of which is an offer for sale by existing GDR holders (they call it `sponsored’ issue quite funnily - even as the GDR holders are seeking to exit the venture!). About Rs.5 billion will accrue to the company out of the issue proceeds (and remaining Rs.5 billion to exiting shareholders). GEEC currently has accumulated losses of Rs.216.37 million in its balance sheet.

Net increase in paid up capital will be just Rs.50 million or so. That means a fat premium of close to Rs.199/- per Re.1/- share in a down market even as the company is barely into revenues (Rs.49.39 million for FY 2007-08). The company has initially raised $20 million in December 2005 (1$=Rs.44 then) – that means the investors are in a hurry to recoup 5.68x their initial investment. Begs the question - why the hurry?

It will be fun to watch how this rip-off IPO is rated by the agencies and how it gets palmed off to investors – both suspecting and unsuspecting. But the real fun will be to watch its outcome, that will be an indicator of the level of investor gullibility ;-)

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