Monday, July 09, 2007

Mad rush to buy IPOs

"I GIVE up!

A friend threw in the towel last Friday out of exasperation and frustration. Like many other people I know, he has been trying to buy some shares of the three current hot tickets in the Philippine stock market: The initial public offerings of Phoenix Petroleum Philippines Inc., Aboitiz Power Corp., and GMA Network Inc. He called everyone he knew has access to these shares, wheedled and practically begged just to be able to get some shares. He didn’t get any.

Trying to buy shares of these IPOs has been like attempting to get through King Arthur’s proverbial gauntlet.

The problem is that many people, particularly first-time investors in the local stock market, just do not understand how investing in the stock market works, particularly concerning IPOs. Most think that it is as easy as opening a time deposit account in a bank—one walks into a bank, fills out some forms, hands in the money—and presto, one begins counting profits. Unfortunately, it’s not really as easy as it sounds. But then again, when has making profits been so easy?

To begin with, the demand for IPOs today is so great. It seems there is just too much liquidity in the system that the demand is clearly exceeding the supply. There are also a number of regulatory requirements that need to be satisfied. For example, one has to prove that one is not laundering dirty money. I know that this whole anti-money laundering thing sound ridiculous to ordinary mortals like us who do not have access to grand corruption schemes. Still, we all have to do our share to make the global financial system clean.

Anyway. The much-celebrated bull run of the local stock market—it is now one of the best-performing stock markets in the world, outperforming even some of the more established bourses in the world—is attracting many first-time investors who are enticed by the promise of quick returns on their investments.

Many people are buoyed by the success story of the Philippine National Reinsurance IPO a couple of weeks back. The offer price for Philnare was P3.80 per share. That price skyrocketed to a high of P5 in a few days’ time. A number of people obviously made some money there and this has created a bandwagon effect.

Assuming one was able to get his hands on the Philnare offer at P3.80 and sold it at the current price of P4.40, this easily translates into a 16-percent yield in a few weeks’ time. This is a big deal when one considers that the interest rate for time deposit is less than 8 percent per annum.

The going rate for savings accounts is even less, hovering at about 2 percent per annum. At the rate interest rates are falling due to a very liquid financial situation, there are people out there who are submitting a doomsday scenario when depositors would even have to pay banks to keep their money in their vaults. A 15-30 percent yield in a few weeks’ time is nothing to sneer at.

It’s definitely a great investment proposition. The problem is that IPOs are difficult to get and like I said, there is a limit to how many shares one can buy. Of course, one can invest anytime in the stock market without having to buy IPOs. But IPOs offer a more direct line to a quick profit so most are hedging their fortunes on them.

It’s too late now to buy shares of the Phoenix and Aboitiz IPOs as these are already scheduled for listing in the stock market soon. Phoenix shares (offer price: P9.80) will be listed in the market on July 11 while Aboitiz (offer price: P5.20) goes up on July 16. The window period for small investors has already expired.

But the listing of the GMA IPO does not happen until the end of July and small investors can still buy shares. The problem is that the GMA offer has put a cap for small investors at a maximum of 1,000 shares per investor. The relatively low ceiling is supposedly designed to spread the ownership of the shares to as many people as possible. Too bad not very many people would be willing to suffer queuing up and submitting to a rather stringent process just to buy 1,000 worth of shares.

On the other hand, 70 percent of the total tranche of the GMA IPO is allocated for foreign investors. Of the 30 percent shares remaining, 20 percent is allocated to trading partners. Only 10 percent is allocated to local small investors. It doesn’t make sense, particularly since GMA claims to be a network for the Filipino people. I am sure that GMA Network can come up with a justification for this gaping imbalance in the allocation of shares, but until then, we just have to seethe at the crumbs Filipinos are being offered.

The offer price for GMA is yet to be decided on July 16, but the announced price range of the offer would be between P7.50 to P8.50 per share. The following projection is purely speculative and please do not take my word for it. I am simply trying to illustrate why there’s a mad rush to buy the initial offer. But assuming that one buys 1,000 shares at P8 pesos and the price of the stock goes up to P12 in a couple of weeks’ time, one expects to get a yield of 50 percent in a few weeks’ time. Again, please remember that this projection is speculative. I am not an investment adviser.

They say the GMA IPO will be the hottest this year. In the words of a friend of mine who is a stockbroker, it’s guaranteed to be patok (sure bet). GMA Network Inc. just happens to be the market leader in the industry and is supposed to be the most profitable among the local media networks.

In case one wants to get into the bandwagon and intends to submit himself or herself to the process, one has to make a personal appearance at any of the authorized underwriters of the GMA IPO. One can log on to to get a list of these underwriters (Banco de Oro branches have always been an underwriter for the recent IPOs so if you are near a Banco de Oro branch you are lucky). Some stockbrokers such as Abacus Securities Corp. are also authorized to issue shares to local small investors.

One has to bring two government identification cards (passport, drivers’ license, GSIS or SSS ID), accomplish an application form, and appoint a broker for the transaction. The price offer will still be decided next week. Please remember that the limit for local small investors is 1,000 shares only. This means that local small investors can invest only up to a maximum of about P8,500.

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