Collateral damage!

By Indika Sakalasooriya

The Textured Jersey (TJL) share which debuted yesterday evidently showed that even a reasonably priced Initial Public Offering (IPO) in relative terms cannot make a fair performance in the Colombo bourse, which is largely overwhelmed with negative IPO and credit-oriented sentiments.

However, making justice to the fair priced stock, TJL opened at the offered price of Rs.15, before coming down to Rs.13.50-14 levels, unlike the Softlogic IPO, which straightaway opened four rupees below the IPO price.

According to a number of analysts, overpricing, dubious private-placements and restrictions on providing credit by brokers have created problems for most of the companies that came into the market in the recent times.

“Although TJL is immune to overpricing and controversial private-placements way below the offer price, I would say the debutant share was hit by credit restrictions,” an analyst who wished to remain anonymous said. According to him, a part of the problem faced by the recent IPOs is, a lot of people who apply for IPOs in the public part, and private placements, are not genuine long term investors and are traders with limited power or intent.

“So credit play a major role in their investment, and it is particularly true in Sri Lanka and other small illiquid emerging markets” he noted.

“The whole perception on IPO market is shattered by the two recent IPOs that came into the market with controversial private placement deals. And also investors are not looking at them positively due to bitter lessons they had in investing in those IPOs,” Hijaz Suhair, Assistant Manager, Corporate Advisory and Capital Markets said.

He also noted that this market momentum will make investors to keep their money in bank deposits or switch to more secured investments.

He further said that the falling global markets may also have had an effect on the overall market sentiment.
European markets fell by about 20% last month and the US markets by 17% on average. The markets in China and India have come down approximately by 10% while the Australian market has fallem by about 13%.

Analysts also argue that the share price could have been bolstered if the directors of the company started buying the TJL stock from the market, which had been the practice with the recent IPOs that came into the market.

However, due to regulations which say that directors can’t buy or sell shares three days before or after the interim results of the company were released to the Colombo Stock Exchange, the directors of TJL were unable to buy shares from the market.

The TJL IPO saw a diluted impact yesterday with an overall market seeing volatility. The stock began trading at its IPO price with almost 1.4million shares trading. The price came down to Rs.13.50 and saw stable range during the day at Rs.14.00 –14.20. For the day, only 11.7million shares traded despite the company offering 80 million shares.

source - www.dailymirror.lk