With post Initial Public Offerings (IPOs) price crashes, the initial 60 IPOs on the cards for this year have dwindled by half to 30 as many firms have put on hold their IPOs which were to be issued this year, according to stock market sources.
“With over eight months gone, not more than 30 firms are slated to go public for 2011 mainly due to the weak performance in share prices of IPOs during the past few months (after they started trading in the stock exchange),” an analyst said.
Rationalized the “IPO craze”
He added that certain recent IPOs which didn’t perform as expected may have now rationalized the “IPO craze” as the issuing firms are also apprehensive with investors now more choosy about what they invest their money in.
So far only 25 firms have gone public and more than 70% are through introductions.
“Some of those who applied for IPOs from the Colombo Stock Exchange (CSE) and got the nod are also holding on," a source told the Business Times.
Analysts said that past levels of 60 times oversubscription again is unlikely in the future. "Listings have slowed mainly due to the slowing market condition. So people are not that enthusiastic for going into new listings," Danushka Samarasinghe Director Research TKS Holdings noted.
Analysts say that some firms that came into the stock market aren't fundamentally strong or credit-worthy. "Everybody knows that some of them don’t even have proper business models and some don’t have any fundamentals. You cannot expect foreign investors to invest in these companies, just because they get oversubscribed by poor pensioners who want to make some quick money.
The investors are losing confidence," Adrian Perera, CEO RAM Ratings (Lanka) Ltd told the Business Times. He added that one cannot build confidence by telling such pension funds to come to the market.
He explained that the CSE must adopt either the western model the (US, UK) or Eastern model (India, Malaysia, HK, China) where only investment grade-rated companies are allowed to come into the market. "The reason is that if the company cannot pay its loan oligations they aren't able to justify a dividend. Only a handful of companies listed in CSE's main board are investment grade-rated," he pointed out. Contd. on page 9