Issuers should take Merchant Bankers to task

Talk of clumsy merchant banker allowing semantic distortions and when hauled up by SEBI, refuses to yield. Outcome? Botched business plans of issuers!

SVPCL, a Hyderabad based manufacturer of computer stationery floated its IPO in October last year, and raised Rs 34.5 crore. Though the issue was fully subscribed, BSE denied permission for the shares to be listed on the exchange because of an apparent misstatement in DRHP. This was because UTI Securities, the lead merchant banker responsible for post-issue compliances, had expressed its inability to give an undertaking as required by BSE under Section 73 of the Companies Act, 1956.

The IPO, which got subscribed little over one time, was stalled after BSE refused listing permission as the company had inadvertently mentioned on the cover page of its red-herring prospectus that at least 50% of the net issue to the public shall be allocated on proportionate basis to QIB. The legally appropriate term to be used was ‘up to’, and not ‘at least’.

Why not the merchant banker be hauled up for errant drafting that they do? Should they not make it up to the issuers? Who is responsible for semantic distortions creeping into DRHP?

What else the issuer pays fee to the merchant bankers for? If they were to draft it, why would they hire a merchant banker? The CFO and Company Secretary can sit together with lawyers and bring about even an IPO, except that SEBI mandates appointment of Merchant Bankers. Now that it has lost the case against the exchange, SVPCL must file proceedings against UTI securities for refund of fees and for damages...

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Lead (not so) kindly light

Reliance ADAG group jingled “power on, India on” just before Reliance Power IPO. The stock debuted in the market and put all lights off. When the alley was all dark, Anil Ambani emerges from the shadow holding a candle.

People didn't figure out it was hoax yesterday? Good lord. Pull your heads out of your butts, people....

First, could it be a genuine expression of an overwhelming sense of guilt? A sort of admission – Yes, we overpriced the stock and valuations rode on the Reliance track record more than fundamentals. But bonus shares are not the same as “money back”, it just signifies a reduction in premium. It increases the floating stock and effectively reduces the stock price in the short term. It does not reduce your pain, but now you can see Anilbhai’s face in the candle glow better.

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Second, R-Power has collected only 10% from QIB and 25% from retail investors. It has to collect the remaining 90% from QIB and 75% from investors scarred by its listing inferno. Even if the company forfeits the marginal upfront application money paid by investors wanting to back off, investors could still cut their losses on the unpaid allotment money part and run. That would effectively mean IPO is undersubscribed and hardly can R-power proceed to reissue shares at a discount.

Third, the R-ADAG group can hardly afford to disillusion investors if it has a series of IPO plans lined up. Its private equity fund is entirely funded by Anil Ambani’s personal wealth and has some huge investments in entertainment, real estate and technology. All these companies will have to go public sooner or later and it’s easier to milk a faithful investor base. That’s a grand strategy and a surefire exit route. It’s a bad idea to choke up that pipe right now.

Fourth, what’s R-ADAG got to lose anyway on the closing price of Rs.372 on the opening day? R-ADAG promoters in fact got a debut valuation at a premium of Rs.355 on its Rs.17/- per share (fully paid-up) investment in the Reliance Power *shell* already. It makes a pomp and show about its magnanimity in depriving itself of the present bonus allotment. The fact is, it already got its bonus as much as 20.88 times over !!!

The hidden pack of beneficiaries could be the usual suspects. Amar Singh, Mulayam Singh and the Bachchan family holdings. Not to forget Reliance Energy's majority holding and its scope for recoupment in the long term...:)
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All Lights Off

Bing bang IPO of Reliance Power Ltd., is trading at a discount of over 10% today, on its maiden listing…

Slam dunk. Poor investors will be inundated with heavy losses since most of them have borrowed liberally from banks and other lenders that were more than happy to extend short term funds for this IPO. The early hums were on doubling the money in about 25-30 days since the issue was from Reliance stable, that has a reputation for grand listing rewards.

Market sentiment is God. No arguments.

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Names don’t mean much Mr.Khorakiwalla…

This is it. Wockhardt Hospitals backs off. A glowing moniker for investors’ shrunken appetite for IPOs. Emaar MGF is likely to follow suit if it fails to scrape through. The QIB portion of Wockhardt Hospitals IPO was subscribed just 6.44 per cent. The retail portion was subscribed to a far more respectable 51.92 per cent. Some reports reveal that the grey market premium for Reliance Power IPO has significantly declined.

I would leave the downturn in investors sentiment alone for now. What stuns me is that it has happened despite the impressive line up of high profile investment bankers by Wockhardt Hospitals – Citigroup and Kotak Investment Bank. Could they not secure even one time subscription by QIBs? How different are they from other not-so-high-profile I-Banks then? Why didn’t it devolve upon them if indeed they’ve underwritten it? Or have they? No clear answers yet.

As a corollary, can’t we safely imply the success of the issues lead managed by them has also been by default? I would lay it on boom time sentiments and certainly wouldn't attribute it to their subscription procurement skills. Talk of their famed connections and ability to secure huge subscriptions – their principal deal bagging levers.

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A bird tells me India’s I-bankers are a cautious lot. Foreseeing IPOs that lay goose eggs, they do `soft’ underwriting only – responsible only if bidders fail to pay up on allotment. Smart as they are, they don’t do the `hard’ stuff – the kind that obligates them to make it good to the issuer on the unsubscribed portion of the IPO. So, if the IPO bombs without attracting bids, the I-Banker can go scot-free.

In short, the names don’t mean much. Mr.Habil Khorakiwalla, CEO of Wockhardt must be licking his wounds now – or busy returning subscription cheques to investors (within 15 days).

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