AN OVERWHELMING response to the non-institutional portion of NHPC’s public issue is giving sleepless nights to many high net worth individuals (HNIs) who have bid for large quantities of shares using borrowed funds. The stock will have to list at least Rs 10 over the issue price, if these players are to break-even. And going by the latest grey market rates, it looks as if the HNIs (the ones who borrowed money to bid) will struggle to make decent profits. The latest grey market rates for the NHPC issue are of little cheer to these HNIs, whose borrowing cost works out to Rs 9.80. According to grey market operators, the NHPC issue is quoting at a premium of Rs 6.75-7. Though not 100% reliable, this rate is a fair indication of the premium on listing day, irrespective of the issue price. Brokers tracking the grey market say the rate fluctuates in line with the sentiment in the secondary market. But with key indices struggling to break their recent highs, not many expect this premium to rise sharply by the day of listing. The non-institutional portion of the NHPC book was subscribed 57 times. Most of the bids came in at the upper end of the Rs 30-36 price band. This means that if an investor subscribes for 57 shares, he is likely to be allotted one share. Unlike most institutional and retail investors, who are prepared to take a longerterm view on a stock, majority of HNIs subscribe to an initial public offer for listing day gains. Unless the stock lists at a significant premium to the issue price, these players prefer to book profits in the first hour of listing, as they have to pay interest for every additional day they stay invested. The interest rate for IPO financing is usually 11.5%-13% per annum. If an HNI had applied for 10 lakh shares of NHPC at Rs 36 apiece, the interest charge on Rs 3.6 crore for a fortnight at 11.5% works out to Rs 1,72, 500. Since the issue has been subscribed 57 times, an HNI will be alloted only 17,543 shares instead of the 10 lakh shares he had bid for. “Demand for the stock on listing day will depend on the market sentiment then,” says a grey market broker. “If the outlook is positive, these HNIs may take a gamble, and hold on to their positions. If not, there could be heavy selling in the first hour (of listing) as they (HNIs) try to cut their losses,” he said.
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