OFS: 1 in 2 stocks trades below the offer price

Last Updated: Tue, Jul 02, 2013 05:34 hrs

Investors who subscribed to equity shares during the recently concluded offer-for-sale (OFS) programme are a worried lot. Stocks of nearly half of these companies (25 out of 51) are trading below their offer price. The promoters of these 25 companies collectively raised Rs 5,500 crore (currently valued at Rs 4,400 crore), data available with Capitlineplus shows.

In August 2010, the market regulator, Securities and Exchange Board of India (Sebi), had asked companies to ensure a minimum public shareholding of 25 per cent. Companies had been given three years' time for complying with these norms, after which, those yet to meet the norms would be penalised.

Among individual stocks, Jaypee Infratech, JSW Energy, Adani Enterprises and BGR Energy Systems have seen value erosion of over 10 per cent, while Jet Airways, Tata Communications, Sun TV Network, Essar Shipping and Mahindra Holidays and Resorts are currently trading up to 10 per cent below their offer price.

Says G Chokkalingam, executive director and chief investment officer, Centrum Wealth Management: "Market condition has been bad and Sebi made it mandatory for companies to comply with these norms by early June. Companies were forced to price issues aggressively so that it gets subscribed and there are no problems on the regulatory front. There are two sets of stocks -public sector companies (PSUs) and the multi-national companies (MNCs)."

However, NTPC, Oil India, Novartis India, Oracle Financial Services Software, Berger Paints India and AstraZeneca Pharma India are among a few companies, still trading above their offer price.

Adverse conditions
Analysts also attribute the fall in the prices to adverse market conditions precipitated by the US Federal Reserve's comments on its bond-buying programme and closer home - the fall in the rupee against the US dollar.

As a result, the benchmark index, the S&P BSE Sensex, has dipped 3.5 per cent, or 709 points, to 19,577 from the recent high of 20,286 it touched on May 17 this year.

Suggests Vaibhav Sanghavi, director (equities) at Ambit Capital: "A lot of this fall in the stocks related to OFS has to do with changing environment and fundamentals in a very volatile atmosphere. Apart from pricing during the OFS, some of the fall is also due to the changing macro situation that has impacted the businesses of companies and the industry they operate in. Some of these issues were priced aggressively, though I would not paint all the issues with the same brush."

Adds Dipen Shah, head- private client group research, Kotak Securities: "I don't think the pricing was steep in all cases. The fall is more due to the overall current market sentiment. There is a fair chance that some of these stocks may come up to their OFS price, or even trade above that in the next six to 12 months. Of the lot, we have a positive view on SAIL (Steel Authority of India Ltd)."

Hit hard
State-owned firms such as National Aluminum Co (Nalco), Rashtriya Chemicals and Fertilizers (RCF) and SAIL are among the major losers, trading lower by 17-24 per cent against their offer price after their stake was sold at a huge discount to their then prevailing market price.

In the case of MMTC, for instance, the floor price offered for the sale of shares on June 13, 2013, was fixed at a hefty discount of 71 per cent to the market price in order to kick-start the disinvestment programme for this financial year.

The government set the floor price of Rs 60 a share for divesting 9.33 per cent stake in the company, compared with the last closing price of Rs 211.45 on the previous day. Since then, the stock has seen its market value more than halve with the stock currently trading at Rs 97.75 on the BSE.

Analysts are of the view that the rush to disinvest public sector companies at a discount often leads to existing shareholders losing out as the stock price of the company falls and the market-cap gets eroded.

"With some of these stocks, there are industry-specific issues as well. For instance, a company like Nalco is in an industry that has excess capacity. NTPC has its own set of problems regarding fuel linkages. So, while these stocks are available cheap, one has to keep industry-specific issues in mind while investing. Amongst the lot, I am bullish on Styrolution ABS (India) and Linde India. From price point of view, one can stay invested in Sail from a year's perspective," adds Chokkalingam

Points out Sanghavi of Ambit Capital: "Going forward, over the next 12 months, exporters would continue to benefit from the exchange rate and the overall improvement in the US economy. We are still not comfortable with the metal pack and continue to avoid it, as we see China as one of the most important ingredient in buoyancy of metal stocks."

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