The Colombo bourse now seems to be in a tricky situation as more Initial Public Offerings (IPOs) are squeezing the cash in the market, resulting in a downward trend. According to stock market analysts, a lot of cash is trapped in new IPOs that came into the market as well as the rights issues by already listed companies that wanted to raise capital in the post-war context to expand their businesses.
“The fate of the IPOs that are yet to come into the market can be quite bleak in the present context. Since the option of bank guarantees are also not there, the companies that are coming up with IPOs will be facing problems in oversubscribing their issues” a market analyst on the grounds of anonymity told Mirror Business.
However, Heraymila Securities CEO Ravi Abeysuriya is of the view that quality IPOs with the right pricing still have room in the Colombo bourse.
“There was a lot of market euphoria during the last 6 to 8 months regarding the new IPOs that were coming into the market. The notion that prevailed was, any IPO can make money and investors who invest in these can make a quick buck, more often than not on the opening day. But now this has changed. In fact, I see this as a positive change” Abeysuriya said.
He also noted that the bourse is cash-trapped largely because only a handful of people are in the market.
“We need both local and foreign investors. However the inflow of foreign money into the market will be slow due to the uncertainty prevailing in the Eurozone. And also foreigners will come in a big way only when our market becomes relatively cheaper to other frontier markets” Abeysuriya added.
The Securities and Exchange Commission (SEC) in January said that there will be 50 to 60 new IPOs during this year including the registered finance companies which have already come into the market by way of ‘Introductions’.
When asked whether the companies which have planned to come to the bourse initially be discouraged by the present market context, SEC Director General Malik Cader reverberated Abeysuriya’s remarks by saying that “good IPOs still have the chance”.
Cader also said although the drying up of liquidity in the market is a growing concern given the large number of new IPOs and rights issues, there are positive inquires from foreign investors.
However Cader was optimistic about the continuation of the trend of companies going public despite a slowing down market.
“Anyway, it’s up to the companies who are planning to list, to determine the timing of their IPO” he said. Hijaz Suhair, Assistant Manager, Corporate Advisory and Capital Markets of Merchant Bank of Sri Lanka sharing his views with Mirror Business said that in the future, IPO investors will be very selective and will look at a number of things that they earlier did not scrutinize but ideally should.
“Hopefully hereafter they will look at the offer price, private placements, track record, purpose of the IPO, debt, issue manger’s credibility, business ethics and the governance of the company before making an investment decision” Suhair noted.
Sri Lanka’s IPO fever was at an all time high during the last eight to 10 months but fizzled out recently, with the scandals of infamous private placements, over pricing of shares and alleged sabotages.
source - www.dailymirror.lk
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