Welcome to HC, I hope you enjoy yourself here & learn a lot!!
Since you are new to the whole IPO thing & you have asked so nicely, I will share some information with you & any other newbies about how all this works. I won't go into specifics as to why I think SVT didn't stag today, but I am happy to let you know how the mechanism works & maybe you can work it out for yourself
Firstly a company such as SVT decides they would like to list on the ASX. Typically they would select a capital raising firm for advise, to help them raise the required capital & to get them listed on the ASX (Lead Manager).
SVT chose to do this by IPO. The listing process itself (once engaging the lead manager) can take up to 12 months, so in order to fund the business during this period, the lead manager will complete what's called a "seed capital raise" these are often at a decent discount to IPO price, as the risk is much greater. In the case of SVT, the seed price was 50% of the IPO price or 10c.
Because the seed price is at a significant discount to the IPO price, 50% of seed shares are escrowed for 12 months, meaning they can only sell 50% of their holdings on listing. Remember these investors have usually been holding for some time, so they may have incentive to get their initial capital out for a number of reasons.
In order to participate in seed capital one must be a s708 investor - earning $250K for the last 2yrs or NAV $2.5mil; signed off by your accountant.
Once the company is ready to IPO the lead manager needs to raise the funds & the prospectus will be released. The strength of the market at the time of raising will determine the difficulty in raising the funds. When SVT went to market, tech stocks had just peaked & started to loose favour. Favour has not yet returned to the market & I expect it won't for another 4 - 6 weeks.
If demand for the sector is high, the IPO will be taken up in no time. A great example of that, is THC (Medical Marijuana company) they raised the funds in 2hrs, as medical Marijuana is hot right now. The real question is; will the sector be hot in 2 months when the stock lists & did the stock go to the right people?
There are 2 things to consider when applying for IPO. Will the listing company be able to raise the required funds & who is likely to take up the offer based on that sentiment?
Then, how will the sector look when the stock actually lists?
Once the deal has been announced to the market, its time to look at the deal & see if its something your interested in. You then also need to consider the connections of the lead manager, their ability to raise funds & who may have received seed.
If the original investors are large clients, less likely to require their capital & they have a long term vision for the company, they are less likely to sell down. The lead manager can in some instances control who receives the offer, but they can't control who ultimately ends up with stock over time; so the more sticky hands they can place the deal with initially, the higher likely hood of stagging.
As part of the ASX listing rules an IPO needs to have 300 investors or more & as such brokers are usually used & given an allocation of capital. If large investors are used to take up the majority of the stock, many small investors will get spread, otherwise it could be a mixed bag.
My view, is Otsana have done well to get SVT listed & the register (list of holders) will tighten over time. I feel SVT was not well understood by the market; as the financial structure is more complex than most listings in this price range & I feel more savvy investors will find SVT over time.
I am also a little concerned that many investors in Australia are investing short term & not seeing the true underlying value of what we have been blessed with regarding some of the recent listings.
Some of the recent tech companies (in particular) listing on our shores have the potential to be disruptive, massive & amazing companies, but will never make it unless we share their longterm vision.
I personally am very grateful to be involved in some GREAT companies & feel lucky to have an opportunity to be involved from the ground up (essentially) in a lot of cases. In many other markets & countries one would need to be a private investor, investing in risky, illiquid private equity placements to receive such an opportunity.
I think its great the ASX has taken the initiative to invest heavily in attracting these assets, & I for one would love to see Australian investors follow their vision.
My hope is our market will wake up to this reality, be less greedy & focus on the potentially bright future ahead of us, all it takes is a little long term vision!!
Hopefully this is helpful & explains the process in more detail for you
SVT Price at posting:
0.0¢ Sentiment: Hold Disclosure: Not Held
