I write to you the day before leaving for Moscow. I will then go thereafter to India. Two of the ‘BRIC’ countries of great growth. Having on BBC’s Money Programme before the IPO (floatation) of Facebook said that the company will drop by 50%, and been 100% correct about it, I am speaking in Delhi on Saturday about IPO prospects of Indian companies. I will be speaking to entrepreneurs who want to be the next Facebook (without the 50% crash in share price).
The event is TiECon and I am there with my Government hat to advise and inform on the benefits of going global from the UK by co-locating their Indian businesses here and thereby accessing the world’s largest market – the EU. (Still $14 trillion in goods and services even without any growth – the equivalent to 10 Indias).
In 2011, the FT noted that the amount of money raised by Indian IPOs dropped by 80%. In the first 6 months of last year, 22 listings raised $780m, when in 2010, 28 raised $4bln. Some 15 companies who got the IPO greenlight from SEBI the regulator, let the approval lapse and delayed trying to raise money.
Little wonder when you consider that shares in real estate companies that floated between 2007-2009 are down 60-80% and those in the power sector are down as much as 50%. And that is the Facebook IPO problem. Hype to the uninformed.
Which also begs the question if you want to access Indian growth would you not be better off investing in companies with a long track record than a newbie. Maybe Cairn Energy?
More Indian companies list on the London exchanges to raise Western cash than any other. The London Stock Exchange is to relax its rules for tech IPO listings. My worry is that those who do not list on the more sophisticated and cash rich London market, but do so looking for large sums from the Indian market, are hoping to be able to get away with poor valuations.
Since 2009, the FTSE 100 is up 40%, but tech start ups such as Asos and RightMove are up 700% and 800% respectively. One reason is that at IPO, in London, you can’t get away with the ridiculously high valuations that US and India may think their investors will pay (hence why Facebook fell and so many Indian IPOs are delayed). In London a valuation more than 15 times annual profits will not get away. Facebook was more than 40 times earnings – at IPO – before crashing in half.
Or take Bharti Airtel’s subsidiary Bharti Infratel which is planning a major $1billion IPO in India. Who is selling the shares – Goldman Sachs, to exit their holdings. Do you want to be the muppet that buys off the smart money who is selling?
This is simply to say, in a new market, and especially in a new market with IPOs, you really have to be both fearless, greedy and a little stupid, to get lucky.