Investors who bought Hero Motors' unlisted shares at ₹300 apiece could be staring at steep losses after the company set its IPO price band at ₹79-84. At the upper end of ₹84, the IPO price was 72% below the ₹300 unlisted quote, while at the lower end of ₹70, the discount was 77%.
Now, hardly anyone is buying the shares at ₹300 quoted in the unlisted market. It was like buying a Kanjeevaram silk saree at full price, only to watch that the store announced a massive 72% clearance sale days later, said an investor on the condition of anonymity.
Mint spoke to unlisted-share platforms and brokers and found that the ₹280-300 levels for Hero Motors attracted few, if any, confirmed buyers.“At least on our platform, we didn't see a person actually buying Hero shares at the ₹280 to ₹300 levels,” said Abhishek Ginodia, founder and chief excutive officer (CEO) of unlisted-share platform Altius Investech."Since there isn't much information available, prices are based on whatever sellers feel like asking, and websites report those numbers.
And because so few shares change hands, there is no real price discovery" said Ginodia. The price that was being quoted is also a 52-week high, meaning sellers quoted the highest they could, said another broker who didn't want to be named. The problem is compounded by the limited supply of shares available for trading in the private market.
Promoters and the promoter group own 85.57% of Hero Motors, leaving 14.43% as public shareholding. With relatively few shares changing hands, even limited buying interest can push quoted prices sharply higher."Since there isn't much information available, prices are based on whatever sellers feel like asking, and websites report those numbers.
And because so few shares change hands, there is no real price discovery," said Ginodia. Shriram Subramanian, founder and managing director InGovern Research Services, also said one of the reasons for the euphoria in the unlisted space is that not many prospective listing-bound company shares are available for trading.
Wealth managers and brokers can also fuel fear of missing out among investors, encouraging them to buy in the unlisted market despite the valuation at which the company eventually prices its IPO, Subramanian added. Many of those quoting high prices could also be employees or management, said Hitesh Dharawat of Dharawat Securities.
The experience was different with National Stock Exchange (NSE) shares. A day before NSE announced its IPO price band of ₹1,700-1,785, its shares were trading at ₹1,980 in the unlisted market, said Manan Doshi, co-founder of Unlisted Arena. Unlike Hero Motors, however, the ₹1,980 price was supported by actual transactions and higher liquidity, Doshi said.
NSE has a larger proportion of shares outside its promoter group than Hero Motors, allowing more shares to change hands in the unlisted market. Liquidity is higher because the public holds 67.5% of NSE's total shares, while non-promoter non-public shareholding is 32.5%.
In NSE's case, investors were willing to pay a premium to the IPO price because some wanted to secure shares ahead of the listing."High-net-worth individuals bought the stock right before the price announcement. They were happy paying extra because getting a guaranteed share allotment in popular IPOs is extremely difficult," said a broker.
"These are long-term investors who plan to hold their shares,” the person added. NSE IPO, which opened for subscription on Thursday, is a pure offer-for-sale (OFS) issue with a size of ₹22,561.57 crore. Hero Motors IPO, which opened for subscription on 16 September, comprises a ₹600 crore fresh issue and a ₹400 crore offer for sale by promoters OP Munjal Holdings and Hero Cycles.