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.