They feared the shares would be undersubscribed due to low investor confidence and watched the offering as an indicator to check the health of the country´s IPO market.[break]
When the IPO wrapped up in the next 15 days, fears of those who were skeptic did not come true. But neither was the market response worthy to mention about.
“We did manage to raise the target amount within the stipulated timeframe but lots of efforts had to be put in to meet the goal,” Bijay Lal Shrestha, managing director of NCM Merchant Banking Limited -- the issue manager of Manjushree Financial Institution -- told Republica.
One of the biggest differences this time, according to Shrestha, was that the issue manager had to overtly rely on marketing activities to generate interest in the IPO. This was unlike in the past when word of mouth used to be enough to make investors open their wallets.
“This time around, participation of retail investors also wasn´t as per our expectation and we had to press institutional investors to purchase shares,” Shrestha said.
This experience of NCM Merchant Bank can be taken as a gauge to measure the sentiment of the IPO market which, like the share market, has now lost its charm.
The country´s share market - Nepal Stock Exchange (Nepse) - has plunged over 73 percent to 313.92 points from an all time high of 1175.38 points in August 2008, wiping over Rs 320 billion from the secondary market till date.
This depressing performance of the secondary market was creating pressure on the IPO or the primary market over the years. “But it had managed to perform relatively better until this year when it hit the rock bottom,” Shambhu Pant, spokesperson of Nepse, told Republica.
Securities Board of Nepal (Sebon) data show only three companies, including Manjushree Financial Institution, have gone to the primary market to raise capital this fiscal year. And all of them faced difficulties while selling their shares. In the last fiscal year, 16 companies had launched IPO.
Although IPOs are generally launched after mid-January, when most of the companies conclude their annual general meetings, possibilities of other companies reaching out to the capital raising market cannot be ruled out. “But they are likely to face difficulties as most of the companies that are planning to raise capital from the primary market are either development banks or finance companies,” Shrestha said.
Investor confidence on development banks and finance companies has plunged in the recent years as share prices of most of these institutions have been dropping, with many trading at below Rs 100 face value.
For instance, the share price of Manakamana Development Bank, the top gainer at Nepse on Tuesday, stands at Rs 65. Stocks of another 18 financial institutions were trading at below Rs 100 on Tuesday.
This is the first time the stock market has seen this trend in the last 13 years. “And this trend does not seem to bode well for the IPO market, as many investors simply wait for the shares to be listed on the stock market - rather than buying it from the primary market - assuming the prices would come down once they are listed on the Nepse,” Dr Manohar Krishna Shrestha, president of Nepal Investors´ Association, told Republica.
All these reasons, according to Shrestha, have brought down yields on IPO shares by more than 50 percent. "This means shares bought for Rs 100 at the IPO market, which earlier used to fetch as much as Rs 300 after being listed on the stock market now give a return of only Rs 135-Rs 150 on average," he said.
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