Banker: Don't place unlimited sell orders on IPOs
Saturday, April 14, 2001
By PAULINE S.C. NG
Investors who intend to sell shares of initial public offerings (IPOs) on the first day of the issue's quotation have been advised not to place unlimited sell orders, particularly in a bear market.
It is dangerous for investors to give their remisiers market sell orders without specifying a sell price as an IPO can open at a fifth of its offer price, Commerce International Merchant Bankers Bhd (CIMB) head of corporate finance Tan Choon Thye said yesterday.
Tan Choon Thye
"Think carefully before you put a market sell order in a bear market on opening day,'' said Tan at a press briefing on how IPO opening prices are determined.
He explained that the KLSE's trading system principally took into account market volume of both buy and sell bids, and matched them by "algorithm.''
In a bull market, it was possible for investors who placed a market sell to get the best price, he said, but stressed "investors should do limit orders (specify the price) in a bear market.''
There is a limit--upwards and downwards--of five fifths on the opening prices of IPOs, warrants, and also shares which are requoted after a period of suspension in trading of the shares.
That first day limit means investors who give unlimited market sell orders could be selling at a price way below what they were actually prepared to sell at.
"It is dangerous to give a market sell order because you don't know how low the order will get matched,'' warned Tan, adding that the market sell order could theoretically be matched at a fifth of the IPO price.
And when IPOs open at below their offer price--as has happened in recent IPOs--the heavily driven retail market panics and tries to cut losses by selling, thus depressing prices further, noted CIMB associate director (corporate finance) Raja Teh Maimunah.
"The general perception of investors is that demand should be best on the first day. But that is only an assumption. In a bear market, investors (who give unlimited sell orders) could be open to very high exposure,'' Tan said.
He pointed out that many people did not realise how the opening prices were set.
Bintulu Port Holdings Bhd, which saw an oversubscription in both its public and foreign portions, will be listed on the KLSE main board on Monday.
It offered a public issue of 100 million shares at an issue price of RM2 each. Its IPO exercise was underwritten by eight underwriters led by CIMB.
" Success seems to be largely a matter of hanging on after others have let go." ~ William Feather
