Comments on IPO

^ ^ More new Comments Added!!! - 16th Dec 2005 ^ ^

The issue?

The extremely poor quality of IPOs being listed on our market.

What can be done?

Here's a compilation of comments on this issue posted on the Saybox and from other various sites.

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I believe 3 very important things is needed here.

1. IPO investors needs to more prudent b4 they invest in a stock.
2. The rules NOT only need to be strict but they NEED to be ENFORCED.
3. The merchant bankers has to be realistic in what they sell. They simply cannot market an IPO based on an incredibly rosy earnings forecast.

i hv no arguments wif ur points.. The issue to me is this:"Intent to Deceive" was there any malice??

Layman out there sees the documents on IPO, zoom in on the FInancials and tengok2... waaa looks good and all certified and verified and double checked... so they buy...Caveat Emptor.... but these guys bought based on what they thot was true picture... your illustration of some company recently listed and a few days later says OPPPPS wa lu gi la reflects what the layman out there got a shafted...i.e., what they read was not even worth the paper it was printed on.. So how larrrrr likdat??

hehe..is like u go to this loktor... he says can make u young..u c da buggers credentials on the wall...waaaa...beh pai.... after 3 visits and a couple of thousands u still look like the shit u were..and u find out d loktor credential all BS....so wat u do actually this wan real case appear on TV news worr... heheheheheh

Beside Litespeed, i was out at the first day, u might probe into ConnectCounty. Cakap besar besar about R& in US bla bla bla. But lossing money at 1st Q also. DOnt tell me business makes 180 change in less than 3 months. Something is not correct. Who would invest in this kind of BURSA.

Oh yes, ConnectCounty is another one! Yup.. all these stocks losing money the very first quarter or even the very first fiscal year after being listed just makes a TOTAL MOCKERY of our stock market!

yeah... listing seems to be better than going to the races, casino or working.... million hair even for the bald chap.... really makes me want to puke.... cry no tears larrr....


The other grave issue is the marketing of the IPOs.It is really shambolic how the majority of the recent listed companies forcasted GROSSLY optimistic earnings projections.End result? IPO investors were left buying a stock which failed to deliver and worse still, the stock was bought at a much, much higher price!

It wud be nice to see company not projecting rocket numbers during their IPO lor... else... or stock market will truly endup being a fish market!

can't get much what you guys try to say but there's a world, real world that is, for you to learn. your post sound childish or stupid. you need to grow up.

me hope that way too.... but then..... bolih land seems not only with this probs, even wanna do some improvement oso, the outcome always dissapointed.... Nato style more than anything..... let's pray for malaysia.

someone mentioned to me that in the initial IPO the cost/km for AA is even lower than it is to run a car (on diesel even...)...now dats an interesting fact.. or issit fiction.... ?

Yes, that's correct. Planes fly high and so the path is in nautical miles. The higher the planes, the shorter the distance! Buy Airasia.

Why buy Airasia when it is bloated up like Violet who ate Wonka chewing gum in the movie. Par value may be 10sen price can still be high unfortunately not in this case! Only a miserable few sen earning per share!

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Edit: 2nd Dec 2005

Digging thru some old news articles, i found this one article posted on Star Biz.

Wednesday May 18, 2005
Underwriters, merchant banks told to be more stringent on IPOs

MERCHANT banks and underwriters have been told to be more stringent and to conduct more detailed study on companies going for listing on Bursa Malaysia.

Deputy Finance Minister Datuk Dr Ng Yen Yen said the Securities Commission was concerned over several new initial public offerings (IPOs) whose share price had fallen sharply in recent weeks.

She added that in China, merchant banks and underwriters were held responsible if a company under-performed.

“If the company does not perform in the first six months, it is the merchant bank and underwriter which are suspended for six months,” she said after launching the Funding and IPO for the SMEs roadshow in Kuala Lumpur yesterday.

Datuk Dr Ng Yen Yen“We cannot have companies listed and on the same day go limit down. This gives a bad impression on Bursa, as if only bad companies are being listed,” she added.

Dr Ng also said businesses must view the IPO as a means to raise funds for expansion and not as a way for cashing out.

“Many businesses also under-estimated the obligations resulting from an IPO, in terms of the reporting requirements that will be needed to protect shareholders' rights and minority interests,” she added.

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Comments:
Yes, rather naieve statement, where has she been the last 10 years or so, with at least 80% of all IPO's being so disappointing?

"We cannot have companies listed and on the SAME day go limit down."

I don't see much difference with all those IPO's that went down the first 2 years after listing, failing miserably the projected earnings. May be even better limit down the first day, at least not more punters are sucked into that one.

what about sc? what are they going to do about it? why just blame the banks and underwriters? isn't sc has the final say on the listing?

why do a minister suddenly putting blame on some parties and not all that are involved? kena burned also in this round??? or do i see a scapegoat coming?

hmmmm...so many un-answer questions. i think i better see star wars and look for the answers there. better still, i think i will go to all the flea and night markets - hear alot of people offering cheapsales for fountains or is it cheatsales...hehehe

I think, you cannot blame SC for that. Their job is to regulate. Not to assess investment. The market should assess it i.e the merchant banks, fund manager and retail investors.

If I really have to pick one regulator to blame, I will blame bank negara. These bastards are runnign the monetary policy of the country. We have DAMN a lot of liquidity in the system....so much sooooo that we (actually, i cannot say we liao. because I am not in KL)....so much soooo that YOU (plural) do NOT have the alternative investment. FD is a dismal 3%. Everything is soooooooooooo expensive. FM and retailers do not have other avenue to invest. All think that IPO is the safe bet. But projections are projections...they are not the same. SImply put, the analysts in Malaysia is simply not good enough. But I think this will change....very soon...:)

Just my view la...just kay poh...cannot day day tok about Liverpool ma

ok, ok...maybe i should not blame sc but someone has to be a scapegoat mah! dr ng already fired the first shot at banks and underwriters. what about bm then, if not sc?

take a look at klse listing requirement, clause 2.16 and 2.17...

2.16 VERIFICATION OF REPORT OR DOCUMENT
the Exchange (mine is the 2001 version, so Exchange is referred to klse) may, at its discretion, instruct or direct....blah, blah, blah.

from legal point of view, MAY is not a must. why don't them change the term to SHALL so that they have more oooomph to prosecute!

2.17 CONTENT OF STATEMENT, INFORMATION OR DOCUMENT
1) an applicant...must ensure that any statement, information or document presented, submitted or disclosed...
a) is clear, unambigous and accurate,
b) does not contain any material omission;
andc) is not false or misleadingand as the siamese king said, etc., etc., etc...

if these are stated in requirement, why then no action or someone forgotten that the are such thing is listing requirement. if the statement, information or document is not correct, why allow the company to be listed. if listed and found that those are wrong...ooopsh, what happen then???

in the end, as the saying goes...blame it on the dumb cows...hehehe

Just my view la ha....
I will be the first one to protest if SC is given the authority to approve or MUST review my projections before they approve my listing. They should leave it to the market. The reason is simple. If I can convince a STUPID and RIGID authority on my financial, I will bet my last single sen that it will be a VERY WRONG financial.

Because I doubt they have the capacity or knowledge to understand and JUDGE my BUSINESS.

It should be left to the MARKET. The problem that we have in Malaysia is that allllllllllllllll local merchant banks and professional only WANT business. They do not need reputation. you can tell from a lot of research report....they are not PAI SEH at all......

But if JP Morgan, CSLA etc are allowed to come in. These people might not be right alllllll the time but they TRIED. AND they have corporate governance, so they only UNDERWRITE deals that are feasible...unlike many malaysian merchant bank which CORNER IPO.....

u quoted from the listing requirement... time frame of the reports submitted is important too... is there any stipulations to that? i can pump and squeeze like hell prior to listing... submit the whole package.... and while waiting for listing the company starts acting like titanic... is the a due diligence done say 1 Qtr prior 2 listing??

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1. We need the SC and BM to regulate this issue better. Cause if this is gonna be the case, how does BM expect to generate investors' interest when companies like these give such rocket numbers? which means...

2. IPO investing is so dangerous and in the future ....

3. if someone ever mentions... ABC is selling below their IPO price.... tell them that such valuation yardsticks is completely wrong!

4. ahhh.... look at those that had badly missed their IPO numbers. Do u see something in common? Their stock price! Their current stock price is currently badly below their IPO prices! (ahhh... valuations do matter .... rite?)

because BM was aggressive in creating a bigger share market, the quality of the listed companies had been compromised. Companies missing their promised IPO proforma numbers by miles... a couple of companies losing money within the first of listing... etc etc...




http://www.apolloinvestment.com/F040107.htm

After nine up-months in a row and a rise of this magnitude, it seems prudent to be prepared for a setback, and perhaps a sharp setback. Exuberance is back; Asian entrepreneurs and governments are pumping out securities as fast as the corporate financiers can prepare the offerings (or as fast as the regulatory bureaucrats will approve them, and the constraint is rarely prudence); US financial markets, the sliding US$, and years of excess present unprecedented dangers to the global financial system.

I tell u hor.... this is exactly what we are seeing in our market. look at the amount of new ipos...

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8th Dec 2005.

Read some interesting comments posted on the Edge Weekly.

Quote:

At an IPO, promoters are selling part of their company to the public. Naturally, there will be a profit. If not, why list? One just needs to do a bit more work to know how much he is paying and whether he is paying too much,"

The bottom line is that with corporate exercises — even IPOs — getting more "creative", investors need to equip themselves with the necessary knowledge to be able to make informed decisions.

Ahem... promoters are selling part of their company to the public. And naturally for a profit too!

Makes you wonder regarding the issue of the overly optimistic earnings projections..

Correct me if i am wrong... the higher or the more optimistic earnings projections, doesn't these promoters gain more?

And correct me if i am wrong... the ipo investor would naturally be the loser for the ipo investor is then investing in a stock based on overly optimistic (err.. inflated?) earnings.

how?

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8th December 2005.

Here is an old article posted on the Singapore Business Times: Views on IPOs

See the comments in red in that above link.

Do you agree with his views? Me? I do!

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And then there were two interesting recent write-ups posted on The Edge Weekly.

IPO Insights: Prospectus — a necessary evil September 27, 2005
IPO Insights: Read between the risk lines October 11, 2005

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what i am most worried about is that once BM is a listed entity, it has a duty to perform. To make money. And when this becomes the focus, then perhaps quality and integrity of the market would be compromised. For example, relaxing on listing rulings. Allow rampant issuance of placement shares. The result? A flea market, perhaps?

my main concern can be seen already. There are one too many newly listed companies losing money within the first year of their listing. And this is just no good to the investing public, is it? Yes, these companies are to be blame and condemmed but then the BM should also shoulder some of the blame for allowing these rotten companies to be listed.

I say by far the biggest culprits are the merchant bankers.
It seems that these days, there is no penalty for missing prospectus forecast.

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Here is another good article written: Get tough with sloppy IPO managers

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Read in Wallstraits.com blog.

1. Basics 101: Reading a Prospectus Part 1
2. Basics 101: Reading a Prospectus Part 2

here is a snippet of comments.

What follows here is a "guide" to prospectuses.

The Drafting Team: Who forms the "drafting team" of a prospectus?The Bankers (Underwriters):They only want to say good things. The better they can make the company sound, the easier it will be for them to sell the securities. The easier it is for them to sell the securities, the more certain they'll be that the clients will be happy. That means fees. Fees are important.In Singapore, it is quite common for the company to be a "borrower" of the bank. It is in the bank's interest to underwrite the company's public offering as a chunk of the proceeds will go to repaying the loan.

The Underwriters' Counsel:The bankers will have their lawyers present. The job of an underwriters' counsel is to make sure that the bankers don't put any lies into the prospectus that are going to get them into trouble later. Their responsibility is to twist the language in the document around so that if the prospectus ever gets brought up as evidence in a court of law, the judge and jury will be so confused that they won't have any idea what the language is claiming, or trying to claim, or maybe not even claiming at all. They have to be crafty.

Representatives of the Company:The CFO is usually in charge from the company's side. Sometimes, depending on how important the transaction is to the company, the CEO may show up as well. If it's the company's first trip to the public markets for money the CEO usually comes in for lunch one day during the drafting. There's almost always somebody more junior from the company there also, usually somebody from the investor relations department. The CFO need to have somebody to pin the blame on in case things go wrong.

Company's Lawyers:It's the company counsel's job to make sure that any half-truths that go into the prospectus aren't going to get the company into trouble. Sometimes company counsel is on the same side of the fence as underwriters' counsel; more often than not they're arguing with one another. If there's ever going to be trouble, the company and the underwriters both want the other guy to take the fall. That's usually why their lawyers end up arguing with each other.

Company's Accountants:Their job is to provide a fair and impartial rendering of the company's financial health. The prospectus contains a lot of detail on the company's historical financial performance, and it's the accountant's job to make sure it's accurate. Before the prospectus gets finalized, the accountants have to provide "comfort" on the numbers. They usually spend a lot of time arguing with the company about what the right numbers should be, so their provision of professional comfort is generally accompanied by acute feelings of personal discomfort. At the end of the day, the company can fire the accountants if it doesn't like the position they're taking. This means that the accountants tend to come around to the company's point of view if they want to keep the business. Usually, they want to keep the business.

Prospectus Summary:
This is always the first section. This is what the drafting team spends 75 percent of their time working on, and it's often the only thing that prospective investors ever read. It's supposed to give the reader all the key information in two to three pages. It's supposed to tell the reader why the company doing the offering is the best, most successful competitor in its industry, why they're the ass kickers who take no prisoners. It's supposed to tell the reader how the company is going to take over its industry, and then its country, and then the world, so that an investment in the company will eventually represent pro-rata ownership in world domination. This section usually contains more b---s--- than any other section.

Reversion to the mean dictates that most companies have to be average. There can only be a few standouts in any industry. This principle works against the goal of representing every company engaged in an offering as the industry leader. Since, therefore, it is impossible to present facts that actually support most companies' claim to be the standout in the industry, the prospectus summary generally tries to confuse the readers through obfuscation. Those drafting the prospectus believe that if they can layer in enough nonsensical prose, readers will become so confused that they'll be unable to realize how mediocre the company actually is.

Risk Factors:
This section is a lawyer's wet dream. It describes all of the things that could go wrong with the company. Years ago, the bankers, the lawyers, and the company all used to spend a lot of time fighting about what went into this section. The bankers and the company didn't want to put too much in here, because they thought that people might get scared and not buy into the offering. The lawyers, though, were scared s---less and just wanted to cover their asses. The fights raged on and on.
Then one day, folklore has it, a brilliant young lawyer came up with the most Machiavellian strategy. He decided that if he overloaded this section with a bunch of irrelevant drivel, people would give up in frustration and neglect reading any of it or, at the very least, stand a good chance of missing the real important points.

Today, there are maybe one or two risk factors that are relevant, really relevant, for any given deal. The rest is window dressing, but there's so much of this extraneous window dressing that the relevant risk factors get ignored. The lawyer, the one who invented the strategy, has been immortalized as a charter member of the Prospectus Drafting Hall of Fame.

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as far as the overhyped mesdaq IPOs are concerned, the promoters and professionals involved shld also shoulder much of the blame. these "qualified" ppl are involved in all the processes leading to the eventual listing, dont tell me they are not aware of how unrealistic some of the figures being bandied in the prospectuses?