IF SUBSCRIBING to the public issue of one’s own company was a sign of loyalty, most Indian employees would fail on that count. Employees’ participation in an overwhelming majority of the initial public offerings (IPOs) this year has been dismal. Logically, when a company comes out with an IPO, employees should take the lead to subscribe to the issue, as they are best placed to understand business fundamentals. This trend has been missing ever since the primary market collapsed in January 2008. While the primary market is showing signs of recovery, employees are sceptical about investing in their own companies. Employees in even some of the better-known companies are not willing to loosen their purse strings. Public issues of Adani Power, NHPC and Oil India witnessed a tepid response from employees. The employee portion of NHPC was subscribed just 0.6 times while Oil India and Adani Power got subscribed just around 0.2 and 0.1 times, respectively. “It is generally seen that the confidence level in one’s own company is abysmally low in India. Many of them know too much about the company (in IPO mode) to invest their money in it,” said Sharad Rathi, investment banking head of Almondz Global Securities. According to merchant bankers, the case was different in the heydays of the run years ago, as subscribed to quality issues in appreciable quantities. Typically, employees participate in IPOs that perform both in the short-term (for listing gains) and longterm (as growth-based investment). “Pricing is the biggest problem in most issues. Employees are like any other investor. They do not want to lose money from the very first day of listing. There are no listing gains to be made. Employees might as well buy high-priced issues from the secondary market after the real price (which is usually lower than the IPO price) has been discovered,” said G Shiva Ganesh, president of Collins Stewart Inga. It is seen, most of the recent issues have not had great debuts on bourses. Most of the time, the stock falls well below the offer price a week into the listing, forcing investors to liquidate their positions at a loss. “The whole idea of having an ‘employee segment’ in public issues is farce. If a company wants to reward its employees, it can offer them shares at a discount (to offer price) prior to public issue. They can put an investment lock-in period so that employees don’t get any undue advantage over other classes of investors,” Mr Ganesh added. According to merchant bankers, promoters used illegal fronts (through employees) to corner shares during the heydays of bullrun. This, however, has stopped with Sebi coming down heavily on erring promoters in 2008. The unsubscribed employees’ portion is proportionally allotted to other classes of investors these days, they said. Employee participation could decline further in the coming days because of the new ICDR guidelines, which states that employee reservation can only be utilised only by employees of that particular company, and not those from subsidiary companies. [email protected]
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