Investors hit the jackpot of IPOs

Raihan M Chowdhury and Babul Barman Bangladesh primary equity market subscribed around Tk 50 billion against demand offer of Tk 5.73 billion in the last nine months in 2013, showing the primary stock market is attracting the investors profusely. Analysts attributed the revival of the booming IPO market to poor performance of the secondary market, IPO (Initial Public Offering) quota for affected small investors and approval of IPOs with a minimum premium or face value. "The performance of the primary market is relatively good as newly listed companies in recent time jumped manifold on their debut trading day, which also encouraged investors to get at least one IPO lot to book short-term profit," brokers said. In the first nine months (January to September, 2013), so far nine companies raised funds through IPOs. On an average, the companies' IPO subscription hit around nine times high against their demand offer. Meanwhile, Appollo Ispat Complex and MH Spinning Mills are set to float IPO next month to raise funds worth Tk 2.20 billion and Tk 275 million respectively from public. But, the scenario was completely different a year ago as many IPOs saw sluggish response from investors and some of them were under-subscribed last year. Even, lackluster performance of the primary market had forced some companies IPO subscription suspended or delay last year. The situation was deteriorated after the stock market crash in 2010-2011 that made investors' confidence very shaky. Akter H Sannamat, managing director of Union Capital told the FE: "Investors are showing interest in the primary market as the performance of the secondary market is not well." "So avoiding further loss, many investors switched over to primary market instead of investment in the secondary market" he said. "The affected small investors, who have 20 per cent quota for IPOs, also grabbed the opportunity for getting IPOs to minimise their loss," he said. "The securities regulator in recent days approved IPOs with a minimum premium or in a face value, which also encouraged investors to the primary market as they see confirm profit from it," said Mr Sannamat. "Sharp rise of newly listed company's share price in their debut trading day also promoted investors to go to the primary market," some analysts observed. Recently listed Sunlife Insurance jumped 721 per cent on its debut trading day. Similarly, Global Heavy Chemicals soared 397 per cent, Familytex (BD) 385 per cent, Premier Cement 368 per cent, Central Pharma 284 per cent, Golden Harvest Agro Industries 206 per cent, Argon Denims 134 per cent and Bengal Windsor Thermoplastic shot up 120 per cent while Fareast Finance & Investments rose 90 per cent on their debut trading day. Mohammad A Hafiz, President of Bangladesh Merchant Bankers Association (BMBA) said "As there is no risk in the primary market, the investors showed interest in the primary market". Margin loan facility from first trading day of the newly listed companies is also a reason for the sharp rise of share prices in their debut trading day, he said. "Many investors open Beneficiary Owner (BO) accounts only for applying IPOs and they sell shares in the debut trading day and withdraw money from the market," said Mr Hafiz, also a director of AAA Consultants and Financial Advisers, a issue management company. Meanwhile, it is found that the investors showed more attraction in IPOs that has no 'premium' or a minimum premium attractive for the investors. Bangladesh Building System, Central Pharma, Fareast Finance & Investments and Familytex (BD)'s offer price was Tk 10 each, without premium and their public subsection hit 44 times, 38 times, 17.65 times and 14.23 times higher respectively. On the other hand, Orion Pharma's offer price was Tk 60, including a premium of Tk 50 each, which subscription hit only 1.06 times higher. Similarly, Golden Harvest Agro Industry's offer price was Tk 20, including a premium of Tk 10, which saw only 6 times higher subscription, Paramount Textile's offer price was Tk 28, including a premium of Tk 18, its subscription hit 10 times high, Bengal Windsor Thermoplastic's offer price was Tk 25, including a premium of Tk 15 and subscription hit 14 times higher and Premier Cement's offer price was Tk 22, including a premium of Tk 12, which subscription hit 21 times higher.