The initial public offering (IPO) of Spice Communications Ltd, a regional mobile service provider in Karnataka and Punjab controlled by the Modi Group and Telekom Malaysia, was oversubscribed more than three times in aggregate, on the second day of the issue, with institutional investors leading the rush.
The issue of 113 million shares at a price band of Rs41-46 per share to raise between Rs470 crore and Rs520 crore, had secured just 0.2% subscriptions on Monday, the day that the offer opened. The issue closes on Wednesday.
Institutional investors led the purchase, subscribing for 5.7 times the amount of shares reserved for them. Half the shares in the public issue were reserved for institutional buyers, known as qualified institutional buyers (QIBs).
However, the Bombay Stock Exchange’s website did not specify whether foreign or domestic buyers bought the shares.
“We did not think there was anything alarming about Monday’s response,” said S. Subramanian, head of investment banking at Enam Financial Consultants Pvt. Ltd, the issue’s lead manager. “We did not do anything on Monday because we had seen interest for the issue during the roadshows. Not all issues get subscribed on the first day, but we did expect it to pick up.”
However, retail investors still stayed away from the issue, subscribing for just 16% of the shares reserved for them. Usually retail subscribers apply on the last day, said Subramanian. “We expect all segments to be fully subscribed,” he added. In case any shares are left over from the amount reserved for retail investors, they can be made available for other categories of investors, merchant bankers say.
The company plans to use the money raised from the IPO to part-repay its long-term debt, and fund capital expenditure and licence fee payments required for Spice’s entry into the national long distance (NLD) and international long distance (ILD) telephony businesses.
Analyst reports, which came on Monday, had suggested that the issue would have a mixed response.
While reports from Angel Broking Ltd and First Global recommended that investors “avoid” the issue, Edelweiss Securities Ltd recommended that investors “subscribe”and Keynote Capitals Ltd that they “subscribe with a long-term view”.
“While the company is in the fast-growing telecom sector, its Arpu (average revenue per user) is lower than its largest competitors, Bharti Airtel Ltd and Reliance Communications Ltd,” said Nitin Khandkar, senior vice-president of research at Keynote Capitals.
“They are only in two circles and they want to get into more. But they will incur a huge cost in doing that and in the short-term, it does not pay,” Khandkar added.