Break-even only if IPO lists at 25%-plus premium

At least Rs 4,000 crore worth of leveraged bets by high net worth individuals (HNI) and companies are riding on the Initial Public Offering (IPO) of amusement park operator, Wonderla Holidays.

Buoyed by an attractive grey-market premium, several wealthy investors have borrowed heavily from non-banking financial companies (NBFCs) to invest in the Rs 180-crore offering of the Kochi-based firm, which has received applications worth Rs 6,800 crore. Also, market sources say, financing arms of several large brokerages have lent to investors at seven-10 per cent interest rate for up to 10 days.

According to investment bankers, considering the borrowing costs and oversubscription, leveraged investors might break even only if the IPO lists at a premium of 25 per cent or more.

The cost of acquisition for HNIs — after factoring in the interest costs and allotment ratio — is between Rs 25 and Rs 30 a share, say people with the knowledge of the development. Shares of Wonderla are said to be exchanging hands at around Rs 160 apiece in the grey market, against the expected issue price of Rs 125 when the shares list on or before May 8.

According to bankers, if the company’s shares list at the current grey-market price, HNIs could still get a spread of Rs 10 apiece. “Grey-market premium indicates that leveraged investors will still make profits, but the quantum could be less due to the heavy oversubscription. Bets could be wrong if the grey-market premium comes down with an adverse change in the secondary market,” says an investment banker who does not wish to be named.

For more visit: Business Standard

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