Thursday, April 10, 2008

IPO Tales: 13 days to go

- Oversubscription: If 9 million Kenyans voted last year it's possible a ¼ of them will buy shares. Or that ½ the people with bank accounts will apply for shares. On that, with two weeks to go, new banks with IPO loans include KCB (Uganda), CFC and even high street CBA.

Happy banks: Two banks may have crossed the 1 billion shilling mark for new IPO loans after just a week. They are also earning other fees such as placement/facilitation/arrangement of 1 – 2% of each loan, fees for bankers cheques, returned cheques, money transfer and other myriad charges from the IPO process.

And the fine print of many bank loans lack clauses that deal with some critical questions which borrowers should be asking before they take out 3 year loans, such as;

- If I don’t get a full allocation, can I pay back say 80% or entire loan of loan immediately?
- If shares rise to 10 shillings can I sell my shares in June and pay the bank?
- If price drops to 4 shillings and I want to cut my losses, can I sell the shares?

Multiple share accounts: CDS gets 30 shillings per application, and the transaction managers have warned retail investors not to open many accounts and apply for IPO shares in many names. I saw one I-bank report, which mentions that investors who do this will be charged a 1.5% consolidation fee, but that is not contained in the prospectus.

11 comments:

inspectordanger said...

BANKS - Do you really see over 2 million investors (retail) participating in the IPO? I am starting to doubt this, more so with the current political stalemate.

Anonymous said...

On the bank charges....Astounding!! had though about it, but now i'm not about to go CFC any time soon.

-Aggey

Anonymous said...

I have heard from many people that the share price is expected to drop below Ksh.5 post-IPO. What I wonder then is are there enough retail investors willing to hold the shares until they come back up? Or will there be a bloodbath?

Anyway I still haven't decided wether to buy or not.....hate losing money ..

bankelele said...

inspectordanger: yes I expect 2m retail investors

Aggrey: all banks have charges, as least CFC dislose theirs upfront for you to decide

inspectordanger said...

Banks - now that TZ investors are out of the IPO, do you think 2M is the number. Even though I am glad that they are out of the IPO.

Maishinski said...
This comment has been removed by the author.
Maishinski said...

ALLOCATION FORECAST:
====================

Those predicting a massive over-subscription should keep in mind the "peculiar investing habits" of retail investors...

If you have 1M CDS accounts, it does not necessarily translate to 1M investors due to people having Multiple accounts (many people have have more than 5 CDS accounts).

I would say the investor population for this IPO in ALL of EA combined is in the region of 500,000.

2. Most will apply for the minimum. Therefore suppose 80%, we have 400,000 x 2000=800,000,000.

Round that up to 1b to factor in the few exceptions applying for 4000 shares..

Now, that leaves 100,000 serious retail investors with 2.38b shares left over for them i.e. 23,800 shares per person or ksh 119,000.

Assuming 10% of the serious investors have excellent finances or lines of credit and each is capable of raising an *additional* 1M for 200,000 more shares then we have:

200,000x10,000= 2b shares

Therefore:

1b+2.38b+2b= 5.38b or ~ 160%subscription.

However, considering the individual financial impact of the Jan and Feb destruction, plus competing priorities, high inflation, poor savings culture and banks exposure limits...

Hmmm.. I would say a subscriprion of between 110-130% can be expected.

Prediction for Maximum OVER-subscription on Retail: 30%

:-)

coldtusker said...

Nice calcs but since QIIs pay later they will apply for more shares.

Bank guarantees are easy to get. BAAM is related to Equity & since Equity is a receiving broker Equity can guarantee KSh 10bn.

Equity 9among others0 will lend. Wanjiku is screwed coz she got a petty allowance.

Ugandans r gung-ho about investing in Kenya.

Maishinski said...

CT, True but allocation policy is based on Category of Applicant.

While the QII financial muscle cannot be under-estimated, they do have internal limits for risk exposure.

Additionally, the prospectus says that the QIIs can only dip into Retail if retail is under-subscribed. So in this instance it would appear that retail investors compete amongst themselves - increasing the chances high allocations.

inspectordanger said...

Awesome calc maishinski. So, based on your prediction, what would you say the percentage allocation for Retail investors would be? I came up with 93.6 % using your prediction as a baseline. Sounds GD to me!

Maishinski said...

Inspectordanger, Allocations circa 90% are very much possible for the Retail Category.

Worst case scenario (retail) ~ 85%

QII category and International pool will have a much more fierce battle.

International interest:
=======================
Emerging markets (Brazil, Russia, India, China, Vietnam etc) are now too expensive - and fund mangers are looking at "Frontier Markets" for high gains. I would not sell my stake in Safcom too soon. A massive bull run could be round the corner...

Inflation:
==========
With inflation at double digits,and the property markets overly inflated, there's currently no better place to hedge your savings than in the stock market.

Kenya Currency:
===============
Have you noticed that CBK favors a strong shilling? Any time the shilling loses strength, like in the past few months, CBK pumps a few billion dollars into the economy.

Safcom revenues are in shillings... If they announce profits when KES is at 55/= to the dollar, how will that sound to international investors in terms of US$? Cosmetic, yes. But humans are humans... and humans are greedy. :-)

Provided the KES keeps going up, Whoever has access to an off-shore loan (7-9% interest) can make a killing in the Safaricom IPO (by flipping). E.g. Kenyans in Diaspora...

Disclaimer: Keep in mind - my comments/blogs are just personal opinions and educated guesses.

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