Saturday, 27 October 2012

Astro IPO: "let the buyer beware"

Article "Betting on IPOs not always a sure profit" in the Business Times by Francis Fernandez in the category "Weekend Notes". Some comments by me in blue.

CAVEAT emptor, the Latin phrase for "let the buyer beware", must be ringing in hard on those of us who had believed that subscribing to initial public offer (IPO) shares is like getting a free lunch.

Who could blame them, considering that Malaysia's mega IPOs have given investors handsome returns, that is until Astro Malaysia Holdings Bhd's IPO.

There was no free lunch this time around. The stock tumbled. Some investors lost money and market players have been crying ever since, baying for heads to roll.

"Tumbled", the stock is 4.7% down since its listing. Not really shocking, athough it might go down further due to negative sentiment.

For those who lost money on Astro shares, it is time for a reality check. The stock tumbled; it did not crash. There is also no such thing that every IPO must end up making money.

Just look at the Facebook Inc IPO, the biggest this year, which saw the company priced at around a price-to-earnings ratio of 85 times, despite a decline in both earnings and revenue in the first quarter of 2012.

Comparing Facebook listed on the Nasdaq with Astro listed on Bursa, is that not comparing apples with oranges? It is hard to find two cases that are more different.

The stock fell like the nine pins in a bowling alley and hasn't recovered ever since. Those who invested in Facebook at the IPO stage lost big money.

Just like how Mark Zuckerberg, Facebook's founder and chief executive was hounded after the IPO started trading downwards, Astro major shareholders are also beginning to get some stick.

The Internet has been buzzing this week with comments made by Investor Central's Mark Laudi about the Astro IPO.

Laudi posed a few questions, questions that should have been asked by critical journalists in Malaysia.

For those of us who are unfamiliar with Laudi, he is an award-winning broadcaster who used to report live from the floor of the Singapore Exchange on CNBC Asia.

Is Laudi's thought on the Astro IPO valid or are the inputs given by the likes of OSK Securities, Affin Securities, JP Apex Securities and ECM Libra on Astro's valuation more solid?

The four companies mentioned are brokers, I have never taken an opinion by any broker serious, often they have vested interest. In the US they are very strict with announcing conflict of interest (should be clear to all who have watched Bloomberg or CNBC), in Malaysia unfortunately not.

Those research firms had valued the Astro shares at more than RM3 each.

Investors and non-investors alike can choose to debate on it but at the end of the day, it is the responsibility of those who had bought the Astro shares to read the prospectus in detail before parting with their money.

I agree, but the writer should have mentioned here that the IPO prospectus contained 687 pages! Who has time to read that in detail, as the writer suggests? The authorities have gone overboard in what has to be declared, making it very hard (especially for laymen) to find the essential information, which is sometimes not even in the prospectus (hence the need for critical, objective, investigative journalists).

For those who did not do just that, there is no point crying over spilled milk.


  1. Hmmm... about the prospectus, I remembered reading about how this came about. Basically, because of regulatory requirements, the investment bankers were forced to disclose certain information that would be detrimental to the IPO, such as risk factors.

    According to the book I read, they minimized this impact by overloading the prospectus with all types of information to the point of information overload. Even an accountant/auditor with a good background in Corporate Finance would take a while to sort the wheat from the chaff. And what about those not proficient in English.

    It's a real challenge nowadays...

  2. "Ananda Krishnan, the major shareholders and the underwriting banks did not put a gun to anyone's head and forced him to subscribe to Astro's shares!"

    They didn't have to, because they knew things were already in their favour and it needed just some subtle touches to induce the crowd to rush in and subscribe.

    Unlike most other IPOs, this is "Astro" and they know the name by itself is powerful enough to pull people to subscribe. Even someone who isn't familiar with the stockmarket and things like PE ratio and dividend yield etc. would confidently venture this opinion at the local coffeeshop: "Astro... that's a GREAT company and very profitable because they can collect subscription fees every month. RM3.00 for its shares is CHEAP!"

    The main shareholders and banks know this would be the general mindset. Heck, in a way it's fortunate they didn't price it at RM4 or even RM5! Yes, the projected PER and DY would look outrageous to those who know just a bit about fundamentals but the price can still be justified in some way. And even at those higher IPO prices, the crowd would still have subscribed... "because it's Astro".