Even after Rs 1,000 cr loss, QIBs far from shy

Sado-masochistic: it’s hard to find a better term for the relationship between initial public offers (IPOs) and institutional investors these days. The more pain the former gives, the more eager the latter seem to be to line up as willing victims.

There have been 12 IPOs since Mahindra Holidays and Resorts hit the bourses riding the turnaround story in June this year. The latest one, Indiabulls Power, debuted on the bourses on Friday with a 12.78% loss.

Institutions have bravely shouldered the responsibility of making every IPO a success, though they have lost Rs 1,091.59 crore in the dozen issues on a current-price basis.
The IPOs have given average listing day gains of 1.91%. On a current-price basis, the returns are (-)2.23%.

The qualified institutional buyer (QIB) portion has invariably been oversubscribed in all the major issues. Adani Power was oversubscribed 39.48 times; NHPC 29.16 times; Oil India 53.83 times; and Indiabulls Power 40.49 times.

Comparable figures for the retail portion are in low single digits.

The reason institutions are still coming in is liquidity and possibly comfort with managements, suggest experts.

“Often, subscription by QIBs is not a cut and dried factor. Relationship and influence of the investment banker selling the issue is a strong factor, too,” said R Balakrishnan, an independent investment analyst.

Are they just staunch votaries of pain or is it a confidence that they can lower holding cost by shorting lame-duck issues on listing directly or through other investment companies?

“There are also informal arrangements that influence a decision to invest,” Balakrishnan said.  He did not say what these were.

An analyst who did not wish to be named said the QIBs have a good amount of money at their disposal and have put in money in the recent IPOs on hopes of capitalising on the euphoric sentiment in the secondary markets. “Going forward, though, we may see QIBs’ interest going down as the markets are in correction mode now,” the analyst said.

Surprisingly, institutions have also been prepared to play the role of anchor investor, where a large portion of the shares are picked up by the investor with a 30-day lock-in period to lend stability to the issue.

Indiabulls Power had eight anchor investors and DEN Networks managed two. Together, these investors have put in Rs 323 crore in the two IPOs.

“Generally, the presence of an anchor investor tends to be encouraging for other investors. But anchor investors themselves have not benefited in the IPOs,” said a merchant banker, preferring anonymity.

Anchor investors concede as much.

“As an anchor investor, there is an exchange of liquidity for firm allotment. The idea is not to flip on the first possible day, it is to stick with the company for a year or two,” said an official of an investment fund, which was one of the anchor investors in a recent issue.

The fund official said they have not invested in subsequent IPOs due to issues with business or valuations.

But a more credible explanation may lie in the lacklustre listings that followed the issues, though the investors may have us believe otherwise.

“It is not necessary that people would only buy on the first day. They would wait and watch for an opportunity to buy at valuations they find attractive,” S Subramanian, head of investment banking at Enam Securities said.

So, it is the retail investor who has had the last laugh, for a change.

“The participation level of retail investors vis-a-vis the institutional buyers in recent IPOs clearly shows that the former is smarter,” said R Balakrishnan.