IPOs and market performance

So far, we had three public equity issues held the last three weeks. The first was Harbor Star Shipping Services Inc. (TUGS) with its comparatively small issue of P341.4 million at the offer price of P1.88 a share. The offering period was for eight days that ran from Oct. 16 to 23. It was listed on Oct. 31.

On listing day, TUGS managed to close with a gain of 1.6 percent from its offer price. Since then, TUGS’ share prices drifted sideways to lower. As of last Friday, it was down 9.6 percent from its offer price at P1.70 a share.

Next to brave the equity market to solicit funding was Travellers International Hotel Group Inc. (RWM) with its P20.4-billion ($473-million) issue. Its domestic offering was held from Oct. 22 to 29. It was listed last Tuesday, Nov. 5.

RWM had none of the nicety TUGS got from the general investing public on its listing debut. Upon listing—while it opened higher at P11.34 and proceeded to hit a session’s high of P11.46—its share price was subjected to heavy selloff by retail investors that sent its market price to close at its offer price of P11.28 a piece toward the end of the trading day.

Unlike TUGS, however, the share price of RWM had managed to hold on within the level of its offer price. As of the close of trading last Friday, the market price of RWM continued to hold at the offer price of P11.28 a share.

Right behind RWM was Robinsons Retail Holdings Inc. or RRHI. It was a much bigger issue at P40 billion ($650 million) with a higher offer price tag of P58 a share. The offering period was from Oct. 29 to Nov. 5.   However, we still have to see how its share prices will perform. It was listed yesterday.

Additional IPOs

Last Friday, too, Discovery World Corp. (DWC) became the fourth company to join the IPO bandwagon. Its offering period will end on Friday, Nov. 14. Target listing date is Nov. 21.

DWC is raising P550 million at the offer price of P3.28 a share. This is only about half of its earlier planned target of P1 billion due to management’s decision to focus first on tourism related-businesses and defer for the meantime investment in Enduron Colleges Inc., a culinary school DWC is said to basically source its manpower for resort and hotel operation, among others.

In its investors’ briefing last Nov. 6, the company said it would concentrate in the development of Club Paradise Resort in Dimakya Island in Coron, Palawan (following the acquisition of the resort’s owners and operators, Euro-Pacific Resorts Inc.).

Thereafter, DWC will proceed to “invest in Palawan Cove Corp., a company that will develop a beachfront resort hotel property in San Vicente, Palawan.”

This resort, according to plans, will be a world-class, five-star facility catering to the company’s “usual upper class target market.” DWC is the company behind the upscale resort hotel Discovery Shore Boracay.

Next is “air-conditioning, refrigerator and freezer manufacturer” Concepcion Industries Inc. (CII) with its P2.37-billion equity issue at the offer price of P31.45 a share.

Offering period is from Nov. 13 to 21. Target listing date is Nov. 27.  An overallotment option of 11.2 million shares (to be applied in full or in part) or up to P353.62 million will be added for market-making.

About P2 billion or 85 percent of the equity issue is “secondary shares.”  This is in connection with the unloading of the shareholdings of Concepcion Holdings Inc., Hy-Land Realty and Development Corp. and Horizons Realty.

Only about 15.61 percent of the total equity issue is primary shares that will be used to directly support further business development in the company. The rest will first go to the unloading original shareholders. Not necessarily bad, although this may get negative reaction from retail investors. This arrangement has created some potential risks on a stock’s market price.  Following past experience, it has caused a stock’s price to tank.

Bottom-line spin

With the above IPOs, the market has been also recently flooded with shares due to the additional listing of more shares arising from options to the release of shares under lock-up as in the case of Phoenix Petroleum Philippines Inc. (PNX).

Last Friday, some 171.3 million of PNX shares were added to the present pool of shares traded in the market.  This was “to cover the share-for-share swap transaction with the shareholders of Chelsea Shipping Corp..”  They are now free for trading as a result of the termination of their lock-up period.

These new shares added into the pool of shares in the market create pressure on a stock’s price. They can potentially change the existing price dynamics working on a stock’s price in the market. As is commonly observed, they often drive down market prices because they always have a cheaper acquisition cost than current market prices.

IPOs have a similar impact. They diminish the amount of money that is otherwise used to sustain existing market conditions. They also drive down market prices, as a result.

For instance, the first three companies that just concluded their public offering have taken out about P14 billion worth of investment money that could otherwise contribute to further propel trading transactions and current market prices. This should, therefore, make you understand why the main market index continues to fall. The good news is that their impact on market prices is temporary. They seldom become the cause of a reversal of trend.

Bell awards

On Nov. 19, the PSE will hold the 2013 Bell Awards. The ceremony will be held at the Makati Shangri-la Hotel in Makati City.

The Bell Awards is on its second year. It was launched last year during the 20th anniversary of the PSE. Its purpose is to give recognition to publicly listed companies (PLCs) and trading participants (TPs) for the following considerations: “Adherence to high standards of governance especially in conjunction to the PSE’s listing and disclosure rules” on the part of PLCs and “assessed performance in regulatory audits” on the part of the TPs. The Bell Awards is also the PSE’s advocacy program to enhance the movement on corporate governance both in government and the private sector.

The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at [email protected], [email protected] or at www.kapitaltek.com