Fingers pointed at greedy investment bankers, brokers for public losing confidence in IPOs

From left: Stax Inc. Director Dr. Kumudu Gunasekera, Candor Equities Limited Group CEO/Director Ravi Abeysuriya, KPMG Managing Partner Reyaz Mihular, NDB Zephyr Partners (Pvt.) Limited Managing Director Senaka Kakiriwaragodage, Softlogic Holdings PLC Group Investments Head Niloo Jayatilake, CSE CEO Rajeeva Bandaranaike and Adl Capital Ltd Managing Director/CEO Ishrat Rauff
Pic by Kushan Pathiraja

By Chandeepa Wettasinghe
The investment banks and stockbrokers came under fire yesterday by the industry experts for their greed and inaction when dealing with initial public offerings (IPOs), which has led to the deterioration of the capital market, since the public has lost heavily when investing in IPOs.  

Candor Equities Limited Group CEO/Director Ravi Abeysuriya, who is also Immediate Past Chairman of the Colombo Stock Brokers’ Association, said that investment banks are placing higher valuations on IPOs to earn higher fees from the funds collected through the IPO.

“The companies were so greedy; they also got the investment banks in. It’s very easy. Since the investment banks are being paid by the issuers to get these higher valuations and the public subscribed for them and they end up losing money because in the market the prices have come down,” he said, speaking at the sixth Capital Market Conference organised by UTO Edu Consult, yesterday.

Some investment banks had priced IPOs at as high as three times the market value in the past, according to Abeysuriya.

“I have publicly said this. Some issues, after a private placement, were brought into the market at three times the private placement price. All the returns are only for the issuer, not for the investors. All the big issuances have been somewhat overpriced compared to the market,” he said.

Abeysuriya added that this has resulted in deteriorating the interest in the Colombo Stock Exchange (CSE).

Softlogic Holdings PLC Group Investments Head Niloo Jayatilake concurred and said the investment banks have to be more responsible.

“The investment banker should advise the respective company that the new investors coming in through the IPO have to make money as well. It seems only they (company and investment bank) want to take the crunch at the first go but when you list, it’s a long-term journey, so everybody has to make money or the interest dies,” she said.

She said that of the five IPOs in 2017, all of them are trading below the issue price.

“That means the investor has lost confidence in these issues and they have lost money. They haven’t had a good journey and won’t keep coming back to the CSE. At the end of the day, the ball lies with the investment banker,” she said. Of the five IPOs last year, NDB Investment Bank Limited advised on two issues, Capital Alliance Partners Limited handled another two, while CT CLSA (Pvt.) Ltd handled the remainder.

Meanwhile, CSE CEO Rajeeva Bandaranaike said that the CSE management cannot ethically make any comment on the pricing of individual IPOs.“We don’t want to interfere with companies from raising funds at the price they want. The market should determine the price. We won’t tell any company that they are overpriced or make any comment,” he said.

Abeysuriya agreed, noting that the stockbrokers have been asleep on the job with regard to research. “There are 32 brokers, an over-brokered industry and they don’t have the high quality standards to speak up and tell the public that this IPO is poorly priced and not good. I have not seen that type of input coming,” he said.

NDB Zephyr Partners (Pvt.) Limited Managing Director Senaka Kakiriwaragodage opined that this might be due to the close-knit society of the Colombo financial and corporate sector, where a ‘do not subscribe’ report would offend close friends.

“You hardly see a ‘do not subscribe’ report due to the smaller society in Colombo; you don’t want to upset anyone. Maybe, if you put up do not subscribe reports from the research houses or stockbrokers’ point of view, it will earlier on inform the investor that it’s an IPO fraught with risk. But that doesn’t happen in Sri Lanka,” he said.

Bandaranaike confirmed this by saying that the last time a brokerage issued such a report, it came under heavy criticism.