Why IPOs are rarely stable?

Why IPOs are rarely stable?

Underwriter and the Company determines a price for the stock to be listed and mutually set a target price. Pakistani investors are so far seeing the making of three IPOs, which are rarely stable. Two of the IPOs are PSX based, while third one is in NASDAQ whose associated company is listed at PSX.

The higher the price, the little the demand for the stocks, and price swiftly drops to the levels which it belonged to. The ideal stock price in the IPO process is one in which demand keeps staggering in conformance to supply followed by a gradual increase which holds onto equilibrium till all the shares are picked-up the investing public.

The analysts and valuators which end-up broking-out a higher price do end-up pay the price in the form reputation and loss of goodwill. Hence, at the end of IPO advisors, it is the case of reputation risk management and for the Issuers, it is the case of looking beyond the capital raising ‘intermediaries’ and seeing through the institutional investors

–       TRG’s subsidiary company, “IBEX”, which got
listed on NASDAQ last Friday lost 19% of the price on the very first day. The
IPOs which lose more than 5% on the first day are difficult achieve valuation
target and requisite investor interests at NASDAQ.

–       The Organic Meat Company’s IPO price was set at Rs. 20, with a sheer participation 95 eligible investors in the book-building over 65% of shares were taken by high-net-worth individuals and TREC Holders which also bridged the gap of 80% by subscribing over 8 million shares dedicated for retail segment which again had to be distributed on prorated allocation basis.

–       TPL Trakker has opted for direct listing and has done away with IPO pricing process and underwriter’s role in determination of IPO price by listing outstanding shares. The 50% circuit breaker rule applies only on the first day where a security does not go through book-building or lists outstanding shares directly on the mainboard without creating new shares. TPL Trakker’s first day of trading is going to be very interesting.

The possibility of over-pricing could have to a lackluster participation in case TOMC and the same reason could have shaken the price of IBEX on the very first day of trading at NASDAQ. However, the TPL Trakker has been successful in doing away with the role of capital raising ‘intermediaries’, the Company runs into the risk of losing 50% of the price-erosion on the very first day of the listing as wherein the same capital raising intermediaries come into play once again.

Raising capital without achieving valuation target is an issue which makes investing public to suffer a lot which requires the attention of competent authorities and donor agencies.

 Sani-e-Mehmood Khan

Ahsan Baig

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