Just Dial IPO: Institutional investors bid most on day 1

Written by fe Bureau | Mumbai | Updated: May 21 2013, 09:08am hrs
The initial public offering (IPO) of Just Dial was subscribed 0.5 times on the first day of the issue, with majority bids coming in from institutional investors. Qualified institutional buyers (QIBs) bid for 65.87 lakh shares (0.71 times) of the 91.86 lakh shares that are on offer in the price band of R470-543.

On the other hand, the retail portion was subscribed 0.11 times, as investors bid for 1.95 lakh shares against 17.49 lakh shares that are on offer, according to stock exchange data. Interestingly, this is only the second issue in recent times to offer a safety net mechanism to small investors.

Market players say that given the trend that retail investors usually wait till the last day to put in their bids, it would be interesting to see the level of interest and the quantum of bids placed by retail investors.

Incidentally, several brokerages opined that valuations are stretched and investors with high risk appetite could subscribe to the IPO, mainly from the point of view of earning

listing gains.

The issue would be keenly watched since it is offering a 10% discount on the lower-end of its price band as well as a safety net to retail individual investors. Safety net refers to a mechanism wherein the company buys back shares from retail investors (who got shares during the IPO) if the share price falls below the issue price during a predetermined time period.

Prior to Just Dial, Sai Silks (Kalamandir) offered a safety net to retail shareholders at the time of its IPO in February. The Hyderabad-based company, however, had to withdraw the issue due to tepid response from institutional investors, even as the retail portion was subscribed 1.31 times.

Experts, meanwhile, add that a safety net would simply protect the investors' money for a short period of time and dilutes the idea behind buying into equities which are a risk instrument. They feel that enhanced disclosures about the company would be a better way to draw in and protect investors.

Moreover, a safety net may also result in price control and manipulation during its duration. Experts also argue that if this trend catches on, it could deter honest promoters from raising funds through equity issuances.

According to Sandeep Parekh, founder, Finsec Law Advisors, a safety net doesnt solve the problem of the depressed market or cure the malady of promoter rigging, and positively forces a legal manipulation of the market. The mechanism is likely to backfire by bringing about a change in the attitudes of honest promoters who would seek to avoid IPOs altogether. You still would have the crooked promoters eager to do IPOs," Parekh said.

The Securities and Exchange Board of India (Sebi) released a discussion paper in September last year, proposing a safety-net mechanism to shield small investors. The regulator proposed that a company should make good the losses of retail shareholders if the share price falls over and above the general market fall within three months of listing.

Fast facts

* Just Dial IPO subscribed 0.5 times on day 1

* Price band fixed at R470-543 per share

* Issue offers 10% (R47) discount as well as safety-net to retail investors

* Second public issue to offer safety-net in recent times

* Promoters of Just Dial will buy back shares allotted only to original retail investors

* Brokerages cite valuations as expensive, only clients with high risk appetite may subscribe