KATHMANDU: The share price of Ghorahi Cement Industries Ltd fell to Rs 434.80 on October 12. Within a month of being listed on the secondary market, its price has become cheaper than the IPO price. The company launched its public offering by adding a premium of Rs 335 on shares with a face value of Rs 100 each.
The IPO itself was not without controversies, though. Even the employees of the company and people in the affected areas didn’t subscribe to the shares reserved for them. Likewise, the IPO itself was postponed due to a conflict of interest, as the rating agency that rated the company was promoted by the same group that was promoting the cement producer. Following a public outcry, the Securities Board of Nepal (Sebon) allowed individuals who had already subscribed to the issue to withdraw their money if they wished to.
Given the controversies, it is natural for the price of Ghorahi Cement Industries to fall on the secondary market. However, investors also don’t seem to be attracted to other companies that have recently started trading on the secondary market after issuing primary shares at a premium. Reliable Nepal Life Insurance Ltd is one such company. The life insurer launched its primary shares at Rs 257, adding a premium of Rs 157 on its face value of Rs 100. The company’s share price has been declining ever since trading began on the secondary market. The share price, which climbed to Rs 508 per unit on the first day of trading on September 27, fell to Rs 410 per unit on October 12.
The story of IME Life Insurance, which issued its primary shares at Rs 236 per unit, adding a premium of Rs 136, is no different. Share price of the company, which started trading on August 6, increased to Rs 640 on the first day of trading. After that, it has been declining consistently and dropped to Rs 481 per unit on October 12.
“Nepal Sun Life Insurance launched its IPO at Rs 239 per unit, carrying a premium of Rs 139. The company’s share price climbed to Rs 475 on the first day of trading on September 21. It, however, started losing value thereafter and closed at Rs 440 on October 12.
In the last few months, life insurance companies have continuously issued IPOs at a premium price. But none of the life insurance companies, that issued primary shares at a premium, have done enthusiastic business on the secondary market.
In the last few months, life insurance companies have continuously issued IPOs at a premium price. But none of the life insurance companies, that issued primary shares at a premium, have done enthusiastic business on the secondary market. Share prices of none of the ‘premium’ life insurance companies are higher than the average company. Many more companies have obtained permission to issue IPOs at a premium.
Another controversial company, Sonapur Minerals & Oil Ltd, has already sold its primary shares at a premium. Its primary shares reserved for its employees and people in the affected areas have been sold to the general public after the issue remained undersubscribed. The shares, however, haven’t been listed on the secondary market yet.
Another cement producer, Jagadamba Cement, is also preparing to launch its public issue at a premium price after the Dashain holidays which begin this weekend.
Economist Dr. Chandra Mani Adhikari accused Sebon of allowing companies to issue IPOs at a premium without any criteria. “Most of the companies that have launched IPO at a premium and have received permission to launch their primary issuing at a premium price are not worth the money,” he said. “If you study the case of Ghorahi Cement, you can see room to doubt the regulator and related companies. People are being deceived this way.”
Until a few years ago, premium IPOs had a special status in the secondary market. Shivam Cement had launched its IPO at a premium price when the stock market touched the lowest point of 1,100 points. Even in that condition, the price of the company’s shares, which carried a premium of Rs 300 per share, reached Rs 733 per unit within a month of being listed. Even during adverse market conditions, the price of Shivam Cement had gone up by 59%.
But over the last few months, investors have shown no confidence in companies that have issued primary shares at a premium. Clearly, they are fleecing investors by overcharging their primary share, say investors. The market price of shares of companies that launched public issues by adding a premium substantiates this claim.
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