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THE IPO BANDWAGON
For anybody who didn’t get a piece of Telecom
Egypt (TE), don’t feel bad. Chances are, unless you’re
an institutional investor, you probably didn’t miss much. The
media hype surrounding the state telecom’s initial public offering
(IPO) ensured that the 10-percent stake allotted to individual subscribers
was 10.6 times oversubscribed. That means the small investor who
raced around town, cleaned out their savings account and borrowed
money just to scrape together £E 10,000 to subscribe received
around £E 1,000 worth of shares.
When trading commenced on December 14, TE’s share value shot
up from the subscription price of £E 14.80 to £E 30
within the first hour, before falling to close at £E 23.35.
By the time most sell requests were processed, the stock was trading
closer to £E 20. Our small investor would have earned £E
400 in profit, minus broker fees.
Not bad for a few days’ work. But for anyone able to raise
£E 10,000, they might have done better simply putting it in
the bank, where at current interest rates it would earn £E
400 in about six months without risk, hassle or broker fees.
But then again, IPOs are just plain sexy. Companies like them because
they bring in quick capital; the public likes them because they’re
the closest thing to a surefire bet on the stock market.
And right now, IPOs are in season. The buzz surrounding last year’s
Sidi Krir and AMOC offerings alerted even the smallest would-be
investors to the approaching Telecom Egypt IPO. Over 200,000 first-time
investors are reckoned to have converged on brokerages for a piece
of the action. Few, if any, had read TE’s prospectus, or had
any understanding of the company’s share valuation – they
just knew it was the hot ticket.
While buying into a stock simply because it’s the hot ticket
is the type of crapshooting that often leads to losses, IPOs continue
to defy the laws of gravity. Both in Egypt and abroad, IPOs such
as Google and CCB are experiencing impressive debuts by attracting
the uninitiated masses. One IPO, Chinese website Baidu.com, saw
its share price rise 354 percent on the first day. It’s easy
to see the appeal.
For many, however, the biggest problem is getting a piece of these
heavily oversubscribed stocks. But take heart in knowing there’s
an old saying about IPOs: if you get the number of shares you ask
for, give them back, because it means nobody else wants them.
CAM MCGRATH
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