Oversubscription hurts small investors
I was going to write about something else today but something urgent and troubling came up. As of this writing, I have already received six irate calls and eight angry text messages from friends and acquaintances. All of them are in uproar over the unexpected and sudden twist of events related to the initial public offering of Phoenix Petroleum Philippines Inc.
They were shocked when they found out that that their application for shares for the Phoenix IPO was rejected—this, after they had gone through all the trouble applying for the shares and worse, after they had paid for these shares in advance. To be blunt about it, they were royally kicked in the posterior. The issue was oversubscribed four times. In short, Banco de Oro, the underwriter of the Phoenix IPO, accepted a quadruple more applicants than what was required.
A raffle was conducted to choose who among the thousands who applied for, and already paid for the Phoenix IPO shares, would receive their shares. They released the names of the lucky applicants yesterday. The names were not even arranged alphabetically—one had to wade through 40 pages to find out if one were indeed given the shares. Either the people behind the mess were really pressed for time that they felt basic courtesies can be dispensed with, or that’s really how condescending they’ve become to local small investors. There are many things wrong with what happened. But let’s bear with a little backgrounder here.
Last Monday, I wrote in this space about the mad rush to buy IPOs. I particularly singled out three IPOs that are making waves in the local stock market. These are Phoenix Petroleum, Aboitiz Power Corp., and GMA Network Inc.
The whole point of the stock market is to democratize ownership of listed companies; it is supposed to provide opportunities to ordinary citizens to own shares of stocks of certain companies. For this reason, a certain percentage of shares of IPOs, usually 10 percent, is allocated to local small investors.
If one really thinks about it, the 10-percent allocation for retail investors is ludicrous. It is another way of saying that our regulatory bodies and the companies doing IPOs think that local small investors comprise an insignificant market. And now, with what happened to the Phoenix IPO, the whole thing has become insulting as well.
As I said in my last column, many Filipinos have been enticed to invest money on IPOs because of the hype created by the bull run in the local stock market. The overwhelming success of the recent IPOs has also contributed to the mad rush to gobble up available IPOs. People see it as an opportunity to ride the so-called economic turnaround being crowed about by this administration.
Thus, when the Phoenix IPO became available at Banco de Oro branches, there was a scramble among local small investors for the shares.
When my friends and I went to a Banco de Oro branch to buy Phoenix IPO shares, we balked at the very long queue and the rather arduous process involved, including having to present a stock transfer form already signed by one’s appointed broker. This meant that one had to go to a broker first to get a sign-off before going to the bank branch. That meant visiting two offices and waiting in line at both.
We decided the aggravation of having to wait three to four hours to get 2,000 shares, which was the limit for local small investors, was not worth it. We backed out. We hoped we could get some shares through our stockbrokers. Of course, many of us did not get any shares from that source either—the demand was just so high and there were not enough shares to go around.
But many of my friends and students did go through the rigmarole of buying the Phoenix IPO through the local small investor channel. They took a leave from work, opened accounts at an authorized stockbroker house, trudged to a Banco de Oro branch, waited in line for hours, submitted two government-issued identification cards, and paid for the shares with their hard-earned savings.
There were those who found the process annoying and frustrating. Why can’t we make the process simpler and more efficient so that local investors don’t have to suffer unnecessary aggravation? But then again, we are Filipinos; we have a very high threshold for pain and abuse. We willingly submit to the inefficiency of our systems.
Besides, many got their 2,000 shares and that was more than enough consolation for them. Many of my students were overjoyed to have gotten one foot into the stock market. They started counting their profits before the Phoenix IPO could be listed in the market.
The listing of the Phoenix IPO happens today. But those whose applications for the IPO were rejected will not be cheering the event. They are probably still too angry. In fact many among them may have been completely turned off and may have already sworn not to get involved in the stock market anymore. I know some people who have.
Why did it take that long for the people behind the Phoenix IPO to figure out that the issue was already four times oversubscribed? Why did they continue to accept applications to buy shares of the Phoenix IPO—and receive payments for them—when the issue was already oversubscribed? Why did they only make the announcement two days before the listing of the IPO?
These questions are deeply troubling, particularly at a time when information systems are already sophisticated enough to monitor these things. If only 3,625,000 IPO shares were available for local small investors, it doesn’t take a genius to figure out that they could only accommodate 1,812 investors at 2,000 shares each. The most basic spreadsheet software can churn up the database needed to monitor 1,812 investors. Heck, one actually does not need a computer to count 1,812. It can be done manually.
They could have put in place a first-come first-serve policy in buying the IPO. They could have stopped accepting applications and giving false hopes to investors, many of them first-time investors in the market.
More importantly, they could have stopped accepting payments for the shares that were not forthcoming to begin with. The money stayed with them for two weeks. We’re talking hundreds of millions of pesos here that presumably became part of their pool of funds for investment purposes. Let’s cut this crap at being polite and call a spade a dirty shovel—they already made money out of the funds. There is much a financial institution can do in two weeks with hundreds of millions of pesos.
And now, the people behind the Phoenix IPO can’t even deign to have the refund checks delivered to the rejected applicants. They did not even apologize for the debacle. They have simply issued a terse announcement saying that “for the LSI applicants whose names do not appear in the list, the refund checks shall be made available…” as if investors are dumb driven cattle who have nothing better to do with their time than travel all the way to Ortigas to pick up their money after someone has made quick profits out of them.
And there’s more bad news in the offing. The scuttlebutt is that the same thing happened to the Aboitiz Power Corp. IPO. The rumor is that the offer is even more oversubscribed than the Phoenix IPO.
Shouldn’t local regulators look into this scam?