CAIRO: Want to venture into a successful initial public offering (IPO)? Timing, pricing, and distribution are essential elements.
Panelists at a workshop Monday explained that a successful IPO has to take place at an opportune time for both the economy and the company.
Correctly pricing at book value is also key.
Distribution of shares is critical to IPOs success, as oversubscription represents speculative rather than real demand and could later cause a crash to the stock.
“To [guarantee] an optimum timing, you need to look at market dynamics both globally as well as domestically. Look at the global economy’s cycle and see where your domestic economy fits with it, said Albert Momdjian, managing director at Calyon Corporate and Investment Bank.
“Timing is critical. Missing the correct timing can cost companies a great deal of money, he added. “In terms of pricing, it’s very basic: [forces of] demand and supply. You can’t re-invent the wheel. Let the market decide on the price.
He pointed out that if investors are ready and loaded with cash, then timing is right and pricing will be optimal. A long-term investor, he added, is the ideal type of investor an IPO would seek. “Long-term investors are the ones that support the company. They are not speculators, so you need to seek around 60 percent of these.
Meanwhile, Momdjian was quick to point out that speculators are also of some importance to the IPO because they will create liquidity. “An IPO without liquidity is a disaster. However, ultimate speculators are the ones an IPO should steer clear of because they could trigger sharp fluctuations.
With global stocks on a rollercoaster after the fallout of developed economies, Momdjian pointed out these times are not ideal to launch an IPO “because there is an issue of fear.
“Once there is some sort of confidence in the market, then start looking for opportunities, he said. “In the face of the current financial turmoil, the window for IPOs between now and the end of the year is dead. I will be extremely surprised to see any IPOs taking place this year.
So, while IPOs are currently off limits, how can investors raise capital?
“Private placement presents itself as a good opportunity to raise financing at his stage, stated Sherif Raafat, vice chairman of Concord International Investments.
“You should look at fundamentals of the country, its economy, and investment environment. If things don’t look right, then you could raise capital through a private placement.
Still, Momdjian argued that while timing for IPOs is not apt these days, investors should be prepared to launch one whenever the opportunity presents itself.
“We always tell investors: Get ready yesterday to go public; so that when the opportunity arises, you’ll be ready, he said. “Otherwise, when the opportunity comes, you’ll take time to get ready and the opportunity could get lost.