Auction of Wipro shares misses target, only 51% sold
Auction of Wipro shares misses target, only 51% sold
Mumbai: The newly introduced auction route for share sales has claimed its second casualty in two weeks, when Wipro Ltd on Wednesday fell short of its intended target of selling 35 million shares, posing questions on the future of the route.
Proceeds from the share sale will be used to finance the education activities of the Azim Premji Foundation, a non-profit unit set up by Wipro chairman Azim Premji to improve the quality of education in India, according to a company press statement.
“We will be able to comment on the share auction only after we go through the details and complete the process," the company’s spokesperson said.
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Wipro’s share sale came two weeks after state-run Oil and Natural gas Corp. Ltd’s $2.6 billion (around ₹ 13,000 crore today) stock offering fell short of the government’s target to sell a 5% stake in the company as part of its asset sale programme.
India’s capital markets regulator Securities and Exchange Board of India (Sebi) had introduced two new methods of share sale on 1 February—offer for sale (OFS) through the auction route and the institutional placement programme. This was done to help promoters of publicly traded companies sell their holding in listed firms and meet the mandatory minimum 25% public shareholding requirement before the June 2013 deadline.
Both routes were designed to help promoters avoid the relatively more expensive and time-consuming follow-on public offer route to sell stakes in order to meet the requirement. The two new methods not only save time and costs, but also curb market volatility risks.
OFS adopts the auction route of share allotment on a stock exchange. The auction is conducted during normal market hours and the bid quantities are updated on a real-time basis. Every bid is required to be backed by a 100% cash margin.
In this method, bidders are either allotted shares at a fixed price on a proportionate basis, or at different prices above a floor price on a price-priority basis. Through the OFS method, a company has to issue at least 1% of the paid-up capital of the company, subject to a minimum of ₹ 25 crore. Further, a minimum 25% of the shares on offer is reserved for mutual funds and insurance companies.
If the issuer company fails to get sufficient demand at or above the floor price, it can either conclude the offer or cancel it in full.
The lukewarm response to the share sale could have been because of several factors, according to a person with direct knowledge in the matter, who didn’t wish to be named. Among them could have been the low discount on the floor price to the market price at a time when the software services industry has been facing several headwinds and lack of clarity among investors whether the share sale is to meet the public float requirement of 25%, or for philanthropic reasons.
Citigroup Inc., Morgan Stanley, UBS AG and Credit Suisse Group AG were hired by Wipro as brokers for the share auction process.
“One of the reasons for the failure of the stock sale could be the process itself, which hasn’t caught the fancy of the investing community yet. Besides, Wipro is a low-volume counter, and to drum up enough demand to sell 35 million shares, there should perhaps have been a much steeper discount offered," said an IT analyst with a local brokerage, who didn’t wish to be identified due to his company’s policy.
The analyst said that investors currently preferred stocks of Infosys Ltd and HCL Technologies Ltd, apart from which Wipro had recently made some gains against peers but was yet to deliver on the execution front to justify those valuations, considering it historically traded at a 15% discount to its larger rivals such as Infosys and Tata Consultancy Services Ltd.
Over the past six months, Wipro’s shares have gained 24.4% on BSE, compared with a 20.6% rise in the BSE IT index and a 7.24% gain in the benchmark Sensex.
Reuters contributed to this copy.
Graphic by Yogesh Kumar/Mint
john.k@livemint.com
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