Below expectations: Lalpir Power IPO sees subdued investor interest

Public response not as overwhelming as expected after witnessing overwhelming response from larger investors.

KARACHI:

‘Subdued’ is the word that best describes the response of retail investors to the general public offer for sale of shares in Lalpir Power, an independent power-producing company based out of Muzaffargarh, Punjab, with a gross production capacity of 362 megawatts.

According to AKD Securities Vice President for Investment Banking Syed Khurram Shahid, applications for 10.2 million ordinary shares were received against the general public offer of 9.5 million ordinary shares, which translates into oversubscription of 1.07 times. AKD Securities, along with Next Capital, served as arranger and book runner for the offer.



Although the general public offer was marginally oversubscribed, the response of retail investors seems passive compared with the preceding book-building portion of the offer, which took place on June 18 and 19. Only institutional investors and high net worth individuals were allowed to take part in the book-building process, which consisted of 28.4 million ordinary shares – or 75% of the total offer of 37.9 million shares. The book-building portion of the offer was oversubscribed by as many as 5.9 times.

“We believe the general public’s response has been subdued in comparison with the response we received from large investors in the book-building portion,” Shahid told The Express Tribune in an interview on Monday.

He attributed the lack of enthusiasm among retail investors to the fact that the general public has traditionally been less enthusiastic about initial public offerings (IPOs). “Furthermore, the market was in a corrective mode while the general public offering took place,” he noted. He admitted that the strike price of Rs22 per share, which was announced at the conclusion of the preceding book-building portion, was probably too high to be attractive to the general public.

The general public offer came with the “green shoe option” under which the sponsors could sell an additional 18.9 million ordinary shares – another 5% of the total existing paid-up capital of Lalpir Power – to retail investors in case they oversubscribed overwhelmingly. However, the sponsors are not going to exercise the said option in the wake of a passive response from the general public, Shahid said.

Speaking to The Express Tribune, Elixir Securities Head of Equity Strategy for Retail Muhammad Ali Taufiq said Lalpir Power’s public offer was not ‘very attractive’ at a price of Rs22 per share.

“Given inherent business risks, the public did not show much of an excitement,” he said. Taufiq added that institutions showed overwhelming interest only because they have been buying stocks that offer a good dividend yield in view of the uncertainty about interest rates. “As a result, a lot of peer pressure was observed among institutions during Lalpir Power’s book-building process,” he noted.

According to Najam Ali, CEO of Next Capital, the investment bank that underwrote the offer, the strike price of Rs22 per share was highly attractive for long-term investors. “When we did the company’s valuation, its fair price came around Rs25 per share. Most importantly, the valuation was done at a time when the resolution of circular debt was not yet in sight,” Ali told The Express Tribune, while referring to Lalpir Power’s receivables amounting to approximately Rs11 billion that it is expected to receive soon.

“Retail investors want to make quick profits and that’s what differentiates them from institutional investors,” Ali observed.

Published in The Express Tribune, July 16^th, 2013.

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