Sri Lanka IPO investors look for big gains to cover bank fees

Dec 26, 2010 (LBO) - Big investors who applied for large quantities of shares with bank guarantees instead of cash in an offer by Singer Finance (Lanka) would be looking for a sharp price hike on its debut to cover their bank fees, a report said.

For some investors who applied for the entire issue, bank guarantee fees went up to half-a-million rupees with the 15-rupee Singer Finance (Lanka) share having to rise by over five rupees for them to profit, the Sunday Island newspaper said.

Some 378 big players on the Colombo bourse applied for large quantities of shares on the recent Singer Finance (Lanka) IPO which was over-subscribed by a record 135 times.

Other recent IPOs have also been massively oversubscribed, again mostly with bank guarantees.

"(Investors) will keenly watch how the share will behave when trading begins early next year," the newspaper quoted brokers and analysts as saying.

"There were quite a few who applied for all the shares on offer without putting the cash upfront by furnishing bank guarantees," a broker said.

"Anybody who applied for all the shares on issue by this method would have had to pay close to 500,000 rupees for the bank facility and would get about 100,000 shares," he added.

"That means the share would have to move five rupees up if such an investor is to break even."

The Sunday Island newspaper said that apart from the fee, the applicant also had to have other security to be able to cover any payment made by the bank in terms of the guarantee.

It said that although 378 applications covered by bank guarantees were received, not all of the big applicants asked for all the shares being issued.

The 378 bank guarantee covered applications were for about 3.5 billion shares with a total of over 52.2 billion rupees guaranteed by the banks on payment of a fee of approximately 0.5 percent of the guarantee extended, the Sunday Island said.

SSP Corporate Services, registrars to the issue, said they got a total of 21,899 applications with 212,519 of these covered by cheques or bank drafts.

The Singer Finance IPO offered 26.7 million shares at 15 each.

source - www.lbo.lk