Excitement and challenge as market awaits biggest IPO in six years

The post-war burgeoning equities market is facing a fresh and mega opportunity this week with the biggest ever IPO in six years worth Rs. 4 billion from fast expanding Softlogic Holdings being available for subscription from tomorrow.

Softlogic’s IPO comes hot on the heels of the successful conclusion of the year to date biggest issue worth Rs. 2.4 billion from Expolanka Holdings (172 million shares at Rs. 14 each). The latter drew applications worth Rs. 11.5 billion reflecting a near 5 times oversubscription.

Softlogic IPO (139 million shares at Rs. 29 each) as in the case of Expolanka’s will be a test to the market and its appetite as per independent analysts.

A test in the context that unlike pre-Expolanka IPOs there is limitations on applications with bank guarantees whilst the other is the sheer size, being the biggest since Dialog’s IPO in 2005.

Most analysts are unanimous in welcoming the listing of Softlogic like they did to Expolanka.

 Two conglomerates are unique on their own right and big in stature though the former is relatively new and aggressive apart from being highly visible with some of the biggest or popular consumer brands under its portfolio.

“These two companies are by far best and biggest names to come to the Colombo stock market therefore the IPOs are healthy developments. They are also solid investments hence very attractive,” a senior broker opined.

Despite equities market having an unprecedented busy run and liquidity-stretched since post war, Softlogic IPO will be sought after. Enormous level of liquidity has been absorbed in equities market on account of Rs. 43 billion via Rights Issues so far this year (on top of Rs. 24 billion in 2010), Rs. 4.6 billion on IPOs (as against Rs. 4.3 billion in 2010) and nearly Rs. 20 billion in private placements since early last year. These are on top high average daily turnover since early last year.

Some analysts have endeavoured to draw parallels in Expolanka and Softlogic’s IPOs.  One is their diversified holding structure and businesses and the other is their dynamic success, proven track record and the future vision. All characteristics make the two most sound for new investors.

Incidentally the Managers and Co Managers to the Softlogic IPO are John Keells Capital and CT Capital, the same combination for Expolanka Holdings issue as well.

Brokers who are not directly involved in the two IPOs said that Expolanka attracted the most mature set of investors who are looking for long-term value. The same will apply when assessing and rating Softlogic as well, they added.

Whilst the common view is that Softlogic IPO despite its bigger value, will be a sellout and will withstand the handicap of restrictions on bank guaranteed-applications as did Expolanka.

The latter faced a major uproar over the big difference in the pre-placement versus IPO price. In the case of Expo it was Rs. 8 or 133% whilst Softlogic’s difference is Rs. 21.80 or 303%. Softlogic raised Rs. 1 billion via a private placement early last year issuing approximately 138 million shares at Rs. 7.20 each.  Via the IPO it will issue around 18% stake of the company.

As in the case of Expolanka, Softlogic’s performance and valuation dynamics too had changed considerably accordingly to independent analysts.

Though the issue opens officially on 9 June so far analysts and brokers who made a hue and cry over Expolanka’s price differences have remained conspicuous by their silence of a higher variation in Softlogic’s pricing. Softlogic’s prospectus will be out on Tuesday after which greater discussion and debate are likely.

Among contrasts are Softlogic listing is on the Diri Savi Board whilst Expolanka Holdings is on the main board of the CSE.

The more objective market analysts expect sanity to prevail in the run up to the mega IPO so that all future investments are assessed on fundamentals than other vested or sinister reasons by doom and gloom-savvy brokers and analysts. It was in this context (midst anti or negative connotations and various wild allegations) and bank-guarantee restrictions that independent analysts and objective brokers commended the oversubscription of Expolanka by 4.7 times.

Certain to be highly recommended by most brokers Softlogic IPO involves 139 million shares at Rs. 29 each.  Funds raised by the company will mostly go to retire the expensive short term debt as well as finance some of the new high growth sector investments.

Softlogic’s expanding business portfolio includes IT, telecom and consumer electronics, healthcare, financial services, automobile, retail and apparel and leisure. Reuters reported recently that Softlogic recorded a more-than six-fold net profit growth of Rs. 950 million in 2010/11 financial year ended on 31 March.



Expolanka announces basis of allocation

Expolanka Holdings last week announced the basis of allocation on its Rs. 2.4 billion IPO which was oversubscribed by 5 times drawing near 13,000 applications.

Applicants under retail category will get 100% of their requests whilst the rest will be allotted on the following basis.

Nonretail Category

Shares Applied Basis of Allotment

Up to 71,000 100%

71,100 – 4,000,000 71,000 shares + 16.000000% of the balance shares applied. The percentage is applied after deducting 71,000 shares rounded to nearest 100 shares.

4,000,100 – 10,715,000 699,600 shares +4.000000% of the balance shares applied. The percentage is applied after deducting 699,600 shares rounded to nearest 100 shares.

10,715,100 – 26,785,000 1,100,200 shares +3.889837% of the balance shares applied. The percentage is applied after deducting 1,100,200 shares rounded to nearest 100 shares.

26,785,100 and above 2,099,300 shares + 3.285000% of the balance shares applied. The percentage is applied after deducting 2,099,300 shares rounded to nearest 100 shares.