Tuesday, July 12, 2011

The Great Betrayal - Collective guilt of the Stock Brokers in misinforming the retail investor

SHL or Softlogic Holdings IPO debut today with the shares falling to Rs18.50 by 12.30pm on the first day for shares that were offered at Rs29. The issue was oversubscribed and most of the retail investors who were given their full allotment saw a record fall in the value of their investment in a matter of a few hours.

I pity those poor investors. I was obviously consulted on whether to buy these shares due to some experience I have had in working for the past two years in a Stock Brokerage company, and my answer was a firm no, just as it was for both the Vallible One and Expolanka. In the latter the shares dropped under the issue price within 24 hours, when my guess was 48 hours and in the case of Vallible One, it is hovering at a few rupees (about 15%) above the issue price, partially because the placement was also offered at that price. The shock even for me of the drop of 36% of the issue price by 12.30 means technically it was the quickest way in Sri Lanka for a person to lose 36% in value of his investment in 3 hours.

"THE STOCK MARKET IN SRI LANKA HAS CREATED A RECORD FOR THE FASTEST DROP EVER OF AN IPO SHARE, WHICH TODAY LOST 36% IN VALUE IN A MATTER OF 3 HOURS." This should be the headline in the FT tomorrow, but they will not do so, as Ashok Pathirage the Chairman of Softlogic is influential and connected, and would not wish to seem a big old fool, in front of the SL public for going through the motions of fooling the public in his roadshows. It is further very embarrassing to most of the reputed Stock Brokerage firms that were firmly recommending the purchase to their clients.

I wonder what would have happened to a courageous stockbroker who should have gone out on a limb and not part of the pack, not to recommend this share! Such is the independence of the Stockbroking community in Sri Lanka, and pity the poor investor who has to put up with this sort of competence on the part of those who should be able to call a spade a spade and not be influenced by pressure.

Until Sri Lanka can get over this pettiness and be able to rationally evaluate the performance of shares and use logic to (pardon the pun) make informed investment decisions, we will not have a market that will be able to attract long term investors especially from overseas to it. No amount of road shows and time wasting by SEC officials on junkets to the London Stock Exchange can show up their incompetence and be proved to be minnows in the complex world of Stock Market Investing.

Unfortunately no heads will roll on this, as one or two should, and the jobs remain for the boys and mistrust of the market manipulators grows and the SEC sits like a nodding donkey (californian surface oil wells that keep on going) impervious to the world around them. Of course technically the beneficiary was Softlogic in selling a share for Rs29 which is only worth in the eyes of the investing public Rs18.50 at this time.

Further as an icing on the cake, today's announcement of the purchase of Asian Alliance Insurance did nothing but hurt to the stock.



Anonymous said...

The shares never rose above issue price and in fact dropped as far down as Rs16.20 on opening day, so your suggestion of a buy at Rs15 is not far off depending on how far down the market will fall this week.

Anonymous said...

It is up to the Investor to realize that there is no sure thing in investments even for IPOs as has lately been shown and if one looks at the past 10 IPOs the risk of loss is as great as the likelihood of a gain.

Having said that it is obvious in this scenario that these IPOs are grossly overpriced and that is purely greedy as it is only a few shares that are issued on IPO and it is better to underprice and get a good gain rather than the reverse as the existing shareholders will eventually benefit from an underpricing decision as the reputation that is gained from a gain in share post IPO exceeds the converse happening.

In any case it is a matter for CSE and SEC to intervene in SL case as the Company that sets the price can by way of advertising and influenced brokers circulars get a full subscription or over subscription and therefore hoodwink the unwary

Anonymous said...

I thought it was fairly obvious that Softlogic was overvalued and that most would have been aware of that.

Previously overvalued IPO's did well in the overheated market (thanks to rumours and manipulation) but with market sentiment down this is difficult.

Expo and Softlogic were both too large, issues of around 250m-300m can be managed but its difficult to hold the prices on big ones especially when private placements were done at significantly lower prices.

Looking at the real fundamentals I'm not sure if Softlogic is all that hot, do they have really good sustainable lines of business? Expo has OK businesses but the price is too high.