Financial Chronicle_sept 1, 2008_crash Leaves Ipo Investors $1.6b Poorer

Crash leaves IPO investors $1.6b poorer Reliance Power public issue worst hit By Rajesh Abraham Sep 01 2008, Mumbai

Guess the current worth of the $4.05 billion initial public offers (IPOs) that hit the market in January-August this year. It is only $2.49 billion today. That’s what the blackhole called the market has done to the IPOs. The erosion in the IPO value, at 38.5 per cent ($1.56 billion in absolute terms), is much higher than the 30 per cent drop that the benchmark Sensex suffered in the same time. “The current mark-to-market returns for the IPOs that opened for subscription and listed in calendar 2008 are a negative 38.56 per cent,” said Nexgen Capitals, which prepared a study for the Delhi-based SMC Investment Solutions and Services. Industrywise, the biggest erosion was seen in IPOs of the manufacturing sector (- 52.36 per cent), followed by BFSI (50.93 per cent), retail (- 46.67 per cent), energy (-39.50 per cent) and infrastructure (- 20.47 per cent). The energy sector mobilised a little over $3 billion this year, which is now valued at $1.8 billion. The infrastructure sector collected $414 million through IPOs, which are now valued at $310 million at current prices. The fall in prices has impacted the fund mobilising plans of Indian companies with investors generally staying away from big IPOs. “In recent months, as many as 22 companies, planning to collectively raise Rs 16,539 crore, have allowed their IPO approvals to lapse. This includes some big names like Jaiprakash Ventures (Rs 4,000 crore), Re- liance Infratel (Rs 4,000 crore), UTI Asset Management (Rs 2,000 crore), Acme Telepower (Rs 1,200 crore), MCX (Rs 600 crore) and Vascon Engineers (Rs 300 crore),” said Prithvi Haldea, chairman and managing director of Prime Database. Some of the worst performers this year include Gammon Infrastructure, which is now trading at Rs 97.10, far below the issue price of Rs 167 per share.Reliance Power, now trading at Rs 157 versus the IPO price of Rs 450 a share (and split adjusted price of Rs 281.25 after bonus shares). Future Capital is down to Rs 369 from the issue price of Rs 765 apiece. Despite the crash, some sectors have done well. Pharmaceuticals gave a 29.46 per cent return in the first eight months of this calendar. The telecom sector also did well with a return of 7.11 per cent.

Haldea said companies that had planned to hit the market were staying away as they were loath to sell shares at lower prices. Mahindra Holidays (Rs 1,000 crore), DB Corporation (Rs 1,000 crore), Cox & Kings (Rs 400 crore) and RITES (Rs 100 crore) hold valid approvals from the Securities and Exchange Board of India, but may allow the approvals to lapse. “Clearly, all these companies are unwilling to compromise significantly on their valuations, which are currently very badly hit, based as these are also on peer comparisons. The demand for new paper is obviously very weak in a market like this,”Haldea said.