(The IEX IPO was done today, with a 2x subscription. One of the dampeners today was news that two of the older shareholders -Aditya Birla PE and Multiples PE – sold their shares for LESS than the IPO price of Rs. 1645. The
Aditya Birla PE sold about 74 cr. worth of shares at Rs. 1583 each, to SBI Life.
Multiples sold shares at Rs. 1616 to various HNIs, totalling around Rs. 28 cr.
Why is this strange?
Because these funds could have sold their shares IN THE IPO ITSELF. These amounts are not large. Multiples for instance is selling 450 cr. worth shares in the IPO – so why sell just Rs. 28 cr. worth shares below the IPO price, just a couple days before the IPO opened?
For Aditya Birla PE it is more substantial: it is selling about Rs. 84 cr. worth shares in the IPO. And it sold at a 5% discount, another 74 cr.
The IPO was for Rs. 1000 cr. These funds have sold Rs. 100 cr. worth shares just two days before the IPO, at prices lower than the IPO itself. No one knows why. If they wanted to sell, they could have sold in the IPO. Or, they could have waited till the IPO listed, and then sold shares. It doesn’t inspire confidence in the company that PE shareholders decided to jump ship so fast.
Are They Locked In?
All existing shareholders are locked in for a year after the IPO. They can’t sell any shares till then.
But there’s a special deal for the Multiples and Aditya Birla PE Funds. They are only locked in for one year after PURCHASE of their shares. Both of them purchased shares more than a year back (Multiples in 2012, and Aditya Birla in 2015) That means they are no longer locked in, and can sell shares immediately on listing!
Is This Outrageous? Should SEBI Take Action? (No.)
Well, these funds are within their rights to do what they want before the IPO. It may be strange, but it’s not illegal. So getting SEBI involved is weird – except if there is a procedural lapse of any sort.
But those who apply to the IPO must be feeling a little suckered. After all, they will pay a higher price to buy these shares, but two of these PE funds were happy to sell for lower. If you think the PE fund is “sophisticated”, then the fact is this: They are desperate enough to sell a chunk of their remaining shares at prices lower than the IPO, just a few days before the IPO.
Not that it makes much of a difference. The PE may not be sophisticated at all. When money comes into the picture, people get unsophisticated very fast. When someone offers you money now versus waiting for listing, even people with suits (or sarees) will shake your hand. However, what could be worrying is: what if they know something we don’t?
For the record: Capitalmind thought the IPO was too expensive. At Rs. 1650, this is a 44+ P/E for this company that makes around 110 cr. in net profit. It’s a bull market, but a lot of valuations are a load of bull. So we’ll keep it simple and look at it after it lists.