Expolanka pre-IPO sell down creates controversy

By Indika Sakalasooriya and Jithendra Antonio


Analysts and stock brokerage fraternity in the country were seen little disturbed and distressed about the pre-IPO sell down of the Expolanka Initial Public Offering (IPO), at a significantly low price compared to the offer price.

According to the prospectus of the Expolanka IPO, the sell down of each share by the owners of the company has taken place at Rs.6, while through the IPO, public is offered Rs. 14 per share.

“The question that has been bugging many is, by subscribing to this share at the IPO, aren’t they letting those who bought shares by way of private placements and sell downs at lesser prices (than the IPO price), make money?” a stock market analyst opined on the grounds of anonymity.

He also said that serious doubts have surfaced over the real share value, in the backdrop of company owners selling a considerable part of their stake at Rs.6 per share.

“What we should notice is that, the offer price is 133 percent higher than the sell down price”

The explanation given for the sell down at Rs.6 is, it was done late last year before latest Expolanka financial results came into light.

“There’s no significant difference between the pricing in September 2010 and the pricing now,” Krishan Balendra, President, Corporate Finance & Group Strategy of John Keells Holdings was quoted as saying to Lanka Business Online recently.

However, according to Capital Trust Director Research, Sarath Rajapakse, there is going to be a massacre of small investors once the Expolanka shares hit the market.

“Well the IPO will be oversubscribed, but if the directors have sold down shares to private investors at Rs.6 per share, it means they are going to sell them after IPO anyway,” added Rajapakse.

At the presentation made to the stock brokering community on Tuesday, the managers to the issue John Keells Capital had refused to give any assurance as to whether the private investors will sell at the expense of small retailers, once Expolanka shares enter the CSE trade floor.

Krishan Balendra told Mirror Business at the official launch of the IPO on Tuesday that Expolanka’s directors have sold their holdings to private investors and that does not count as a private placement.

“SEC’s “Lock In Rule” has no relevance to this situation” Balendra added.

Meanwhile, Head of Research at CT Smith Stockbrokers Talaal Maruzook highlighted that Expolanka shares is still attractive, given the fact that Expolanka shares are offered at a discounted price compared to other companies that are listed on the CSE board, under the Diversified Holdings Sector. However, two other companies listed under Diversified Holdings including Richard Pieris (RICH) and Dunamis Capital (CSEC) is also trading at less than Rs.14 levels as per market data.

Expolanka Holdings is to raise Rs. 2.4 billion by issuing 172 million ordinary voting shares at Rs. 14 each, with the IPO opening on May 12.

source - www.dailymirror.lk