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Tuesday, March 29, 2011

Union Bank shares listed today, investors unhappy but banks make gains with guarantees

By Hiran H. Senewiratne

Investors who applied via bank guarantees for Union Bank’s Rs. 375 Initial Public Offering (IPO) have been disappointed as they could not cover the cost of the bank guarantees, said Head of Sales and Marketing, Lanka Securities (Pvt.) Ltd. Eardley Kern.

"The high demand for Union Bank’s IPO was due to the bank guarantees which had to be backed by cash deposits amounting to Rs. 11 million in total. This resulted in the IPO being oversubscribed by around 300 times.

"Before the IPO, several banks issued bank guarantees at 0.125 percent of the value of shares applied for. These banks were able to secure very good returns. However, many applicants are disappointed as many could not purchase the expected number of shares due to the heavy demand," he said.

The heavily oversubscribed Union Bank shares will commence trading today (29) and punters are expected to cover some of their costs.

The SEC recently issued a directive limiting the value of bank guarantees backing an IPO application and the Central Bank is expected to instruct banks to comply. Brokers said in previous IPOs, investors have been known to invest in the entire subscription via bank guarantees.

source - www.island.lk