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Friday, September 26, 2008

Has Grameenphone's IPO failed?

Well not entirely but things are looking rather ominous. It caught my attention when there was a heated discussion between 2 members on this blog in the comments section. But I can't help to think that things are getting worse for GP. The points below sure don't encourage investor confidence:

Yunus going public and on TV threatening a lawsuit
As far as I know, the conditions that Yunus put in the original agreement are non-binding. In paper they were more of recommendations rather than requirements. But the media slant is that Telenor is breaking the law. The media has led us to believe that Yunus has a fighting chance if he indeed decides to pursue legal action. In reality the 'recommendation' nature of the clauses don't have any merit. But bad news always spreads faster than good news

No International takers
As reported by Reuters, Grameenphone did indeed kick-off a world tour to get international investment in the IPO. But now, a local newspaper mentioned that it is in fact extending the IPO deadline for Private Placement. If you put the two facts together it concludes that there are no international investors. It could hint that even Telenor considers Grameenphone's IPO a bad investment. This is because Telenor has companies which they partially or fully own who are capable of participating in this IPO (and a lot of people suspected them to). Don't get me wrong GP is an excellent company but their IPO badly timed (world recession?) and not garnering the attention it once had.

Sizing down & SEC
The media reported that GP sized down the IPO to half in response to SEC's and NBR's condition on the 10% tax break. But before the IPO was filed, the laws for tax break was clearly available to everyone. GP sizing down had more to do with the lukewarm response.

Poor local response
For an IPO priced at Tk 18, the highest price GP got was Tk 12. The lowest was Tk 3. This means one institutional investor actually felt that the Tk 18 share is worth Tk 3. The rest felt Tk 12 was the highest the share was worth. Remember this bunch of institutional investors are not short of money and they have tons to waste if they know they will get a healthy return. But doing the math, it may not be such a wise investment. If the international community decided not to bite, why should local institutions? But GP none-the-less extended the deadline.

Rate cuts and bond issue
GP has been sitting on a decision to distribute bonds. Now why does a company doing so well need bonds all of a sudden? The bond is timed exactly with the IPO. Why does GP need cash so fast and so soon if its the biggest IPO in Bangladesh? Although VOiP fines have been eating up most of their profits, the rate cuts forced upon them by competitors is seriously hurting profitability. Investors had faith because GP's revenues were untouched, but all of a sudden with rate cuts and BTRC reporting that GP did not add a single customer in August has scared everyone. Message to Banglalink, Citycell et all: If rate cuts are temporary and intentional you are the new satan.

Anders Jensen resigning
Just before your company goes for the IPO, you announce to the entire world that you will be resigning. This leads to even more rumors (no not about why Jensen quit or the phone conversations). It makes everyone think that Yunus has a serious chance to remove Telenor and even declaring the IPO invalid (despite how impossible this scenario is). People are also murmuring that Anders Jensen has been having a guilt trip akin to serial killers. If the local and international investors did not slow down this IPO, Jensen definitely killed it like 007.

After all this why should local individual investors bite?

Update: It is now being officially reported that there are no international takers (good detective work huh?)


Anders er baba said...

No wonder there is merit in what you are saying. Still the retails investors in DSE and CSE are far from reading this blog, once the 'hujoog' button is pressed, things might change overnight, either it might do up or come down crash landing, defying all theories of economics and finance, it happens only in Bangladesh.

However, I didn't understand why you used the image of rolling stones and the tabla musician in the post.

Anonymous said...

Your facts are incorrect, the intial bidding for GP's PPO was set from tk 9 - 12, the average weighted price was set at 11.8

So your idea of institutions not being interested is far fetched, the Tk 18 price of the share was always a rumour running in the press. In reality it was the amount upto which GP could charge investors, permission from the SEC was granted till Tk. 18

The fact that the PPO was oversubscribed by over 3 times suggests that the IPO will be a massive success.

Nazim said...


Would like to invest in the Grameen IPO. But not too sure whether investment would be a good idea or not. Could anyone pls advise.

Anonymous said...

GP has launched, 4 oct 2009