The Hindu Business Line : IPOs may come at big premium

THE booming market conditions could prompt companies planning to come out with initial public offerings (IPOs) to charge huge premiums on the shares to be listed on the bourses.

Market buzz indicates that several first-timers such as Biocon Ltd, Patni Computers, Bank of Maharashtra, Power Trading Corporation and even some of the lesser-known companies are planning to charge a substantial premium on their IPOs.

According to marketmen, the rising Sensex and the overall return of faith in the equity market may well have companies cashing in.

"This is the right time for companies to come up with IPOs and the promoters can raise more by charging higher premiums," said a senior Delhi-based broker operating on both the National Stock Exchange and the Bombay Stock Exchange. This is similar to the trend witnessed in 1996 when several companies, big and small, tapped the markets charging huge premiums.

Also, the fact that most of the companies, that have recently gone public, have been able to get listed at higher prices could lead to this trend.

"Both Maruti Udyog Ltd, whose Rs 5 per share was offered at Rs 125 managed to open at Rs 160, while B.A.G Films' Rs 2 share was offered at a premium of Rs 8 and subsequently opened its innings at Rs 14.80. The companies want to cash in on this as well," said market sources.

Another interesting factor is that stocks of companies planning to come up with IPOs have also gone up in the recent past. Ever since TV Today announced its offering at Rs 85-Rs 95 per share, share prices of TV 18 (the only comparable company) has also touched higher levels.

Similarly, the IGL issue has seen increase in stock prices of Government-owned GAIL.

Market sources said that a rat race among merchant bankers, similar to the mid-nineties, is in the offing.

"The moment a company decides on the IPO, merchant bankers try to outbid each other on the premium that they could get for the issue and the issuing company gets trapped. This has started," said a senior market player.

According to Prithvi Haldea of Prime Database, "The issuers too will get more aggressive now. It is not necessarily the merchant bankers who are to be blamed. Someone who would have asked for Rs 60 premium six months back will now try to get Rs 80-85 from the buyer because there is demand and a sustained bull run."

But the situation is not exactly like that in the mid-nineties when a lot of dud issues had been floated successfully... now the fundamentals are also given due importance, Mr Haldea said.

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