Saturday October 6, 2012
Astro’s initial public offer yet again demonstrates how retail investors are discriminated against
A QUESTION OF BUSINESS
By P. GUNASEGARAM
INITIAL public offerings or IPOs these days are a misnomer of sorts. Why? Because the proportion of shares offered to the public are a tiny proportion of the total number of shares offered to gain a listing.
That’s a shame at least in Malaysia where there is substantial retail demand for these IPOs, especially those which are considered to be investment grade and offer good probabilities for recurrent income and dividends on top of price appreciation.
But ironically, retail investors – basically the Malaysian public – are systematically and deliberately shut off from these IPOs and instead foreign and local institutions, and even some individuals are blatantly favoured in the allocation of those shares.
Now we have something called cornerstone investors who supposedly are there to ensure the success of the IPOs and who give a commitment not to sell their shares for three to six months to whom significant portions of the IPO are given.
Such methods of allocation of IPOs may be the norm throughout the world but that does not detract from the fact that they are unfair and put selected investors at a great advantage by giving them clear preference for the shares.
A further irony is that the practices actually work against the interest of the companies by concentrating shareholding in a few hands, thwarting the aims of good corporate governance and the promotion of a fair capital market by NOT giving everyone equal opportunity to own shares in a listed entity.
In fact, companies and their shareholders who make these IPOs will get better shareholding spreads among hundreds of thousands if not millions of investors if they just changed their allocation procedures to something that is fair to everyone.
That it happens as part of the process of listing the company cannot but be seen as a slap in the face for all that is good and meaningful in establishing a great capital market which deals fairly with all investors. Of course, it takes more than that, but that is another story.
Let’s take the latest IPO as an illustration, that of Astro Malaysia Holdings, the third largest in Malaysia this year. The others that have gone before it – the most notable of which are Felda Global Ventures (the largest Malaysian one and the second largest this year in the world this year after Facebook) and IHH Healthcare (the third largest in the world) – are similar.
Astro and its shareholders offered 1.518 billion shares, equivalent to 29.2% of its enlarged capital, out of which 1.044 billion were existing shares while the remaining 473 million shares were new shares issued by the company.
Of the total 1.518 billion shares, 1.258 billion shares (24.2% of the enlarged capital) are allocated to Malaysian and foreign institutional investors and selected investors including bumiputra investors selected by the International Trade and Industry Ministry and cornerstone investors. That represents a huge 83% of the total offer shares.
Among the cornerstone investors are over 20 funds, and one individual, Tan Sri Chua Ma Yu who has also appeared as a cornerstone investors in other IPOs. Cornerstone investors were allocated 8.3% of the paid-up capital or slightly more than a third of the offer shares while bumiputra institutions accounted for 11.5% of paid-up capital overall or 47.5% of the offer shares. One cornerstone investor is also a bumiputra company.
That leaves just 269 million shares (5% of paid-up capital) to the general public or just under 18% of the offer shares. In other words, shares allocated to institutions and one privileged individual were more than five times the number of shares allocated to the Malaysian general public!
But that’s not the end of the story. Out of the 269 million shares for the Malaysian public, only 104 million, just 2% of the paid-up capital or just under 7% of the offer shares was allocated to the Malaysian public at large, hardly an initial public offering.
Among allocations which took a bite out of the retail portion here are 86 million allocated to 4,106 directors and employees of the Astro group, 56 million to Astro’s over three million subscribers and eligible retailers etc, and 10 million to 125 eligible directors of the Usaha Tegas group – tycoon T. Ananda Krishnan’s investment vehicle which owns most of Astro.
And here’s the interesting part, the public issue for the 104 million shares was oversubscribed more than six times. That means the Malaysian public was prepared to subscribe for 624 million shares, even when they knew the chances of getting an Astro share was small.
Should they not be given a far better chance of getting Astro shares?
Perhaps what is most galling about the entire thing is that there is a system by which fair allocation can be made to retail investors. The solution is quite simple.
Just wait for all the responses, both institutional and retail, for the offering and then allocate it fairly according to a publicly disclosed formula instead of setting the proportion for retail at a ridiculously low level way in advance.
P. Gunasegaram is an independent consultant and writer.