Is anyone else watching health-care company Singapore O&G's first day of trading with amazement? The stock was sold at 25 Singapore cents during its initial public offering, and now trades at about 58 Singapore cents — a 132 per cent jump — after only three hours of trading.
For investors who got a piece of the IPO — all 779 successful applicants and placees — that's a pretty nice profit right out of the gate. But IPO pricing is a bit of a zero-sum game. Whatever money the buyer makes is money that the seller lost. What the market has been screaming this morning is that O&G could have easily priced its offering at double what it did, which would have allowed the company to either raise more money or to execute a less dilutive IPO. From the company's perspective, it may have paid too much to raise S$10.9 million of capital.
So who decided the IPO's price? IPO manager Hong Leong Finance probably bears some responsibility. It is the manager's job, after all, to advise the issuer on the market for its stock.
Looking at IPOs in 2014 and this year, Hong Leong Finance may have a tendency to vastly underestimate market demand for healthcare stocks. It was also behind the 2014 IPO of Talkmed Group, which saw its shares jump 310 per cent on its first day of trading. No other IPO in 2014 and this year has doubled from its IPO price. On average, Hong Leong Finance's IPO deals during that period have gained 109 per cent on their first day. Its closest peer, PrimePartners, has an average first-day pop of just 27 per cent during the same period.
Of course, only insiders will know how the price for O&G's offering was determined. The company could well have been advised that its shares could easily be sold at 50 Singapore cents on the market, but decided to be extremely generous to its new shareholders. Don't laugh. There are occasional sightings of businesspeople with a heart.
Thursday's market could also be severely overpricing O&G, with traders bidding up the stock in the frenzy of the moment.
Whatever the case, someone somewhere hasn't made the most economical of decisions or recommendations.
IPO deals from January 2014 to June 2015
|IPO manager||Number of deals||Average first-day performance (%)|
|Hong Leong Finance||3*||108.7|
* Excludes Singapore O&G
Data: Singapore Exchange