Sri Trang: IPO fiasco

Sri Trang Agro company PCL listed on the SGX on Monday, a dual listing away from the Stock Exchange of Thailand, which is it's main listing board.

It was unique in that IPO price was not fixed before offer; retail investors had to pay the maximum price of $1.60, and in the case where price is fixed lower than $1.60 (due to demand from institutional investors or so I've heard), monies would be returned to the bank account of the applicant.

STA was supposed to set pricing on Tuesday, 25/1/11, but delayed it till Thursday where it first issued a statement saying the listing on SGX was off, then, barely an hour later, issued another statement saying to ignore the first statement, and the listing would go on as planned.

Doesn't inspire much confidence, does it?

Then, listing price was set at $1.20, 25% off the max price, indicating demand from BBs was lacking.

Furthermore, listing date was changed from 28/1 to 31/1.

This IPO caused me sleepless nights over that weekend, for 2 reasons:
It looked like a repeat of 2 recent IPO fiascos:
-Amtek Engineering
-China Gaoxian

STA finally released allotment results, and there was NO ballot, meaning everyone who applied received shares. Even ultra small cap XMH had over subscription.
Having applied for 1 lot, received 1 lot.

The last time an IPO saw undersubscription was Amtek Engineering (once a STI component stock), and what happened on listing day? Opening price of $1.00 thereabouts. Immediate 23% loss for unit holders.
Amtek was even worse than STA for the fact that all applicants received FULL allotments, meaning had you applied for 100 lots of Amtek, you'd receive 100 lots of Amtek. STA was a tad better, having received applications for 22 million shares, with an offering size of 20million shares for public.

This led me to much anxiety over whether STA would open underwater.

Secondly, the recent China Gaoxian dual listing IPO in the Korean Exchange was reminiscent of STA.
China Gaoxian was trading at $0.445 before the trading halt to announce pricing of their Korean Depository Receipts. Gaoxian's management decided to price the KDRs at $0.405, which was a 10% discount to the last traded price in SGX. At the open of trading halt, Gaoxian dropped to $0.390 and barely recovered to $0.420.

Even worse, when trading of Gaoxian KDRs opened in KRX, when the KDRs opened deeply underwater at about $0.340, the SGX listed Gaoxian shares plunged all the way from $0.390 to $0.355 in 1 day, and subsequently closed at $0.300 on Wednesday.

This was all very reminiscent of STA. STA announced pricing of SGX shares at a discount to the last price traded on SET, the shares are fully fungible, the main listing's price dropped after annoucement of pricing, and lastly, which STA did not follow, the "tail wagged the dog", meaning that the KRX share price led the SGX share price during opening day.

All this was very worrying for me over the weekend.

And, who would've known, STA DID open underwater at $1.15 on Monday. I was kind of relieved. However, within an hour or so, STA's price did rise to a high of $1.25. Unfortunately, I was indecisive and did not sell it off then. Closed at $1.19. Then, since I had to go out on Tuesday and could not monitor the price action, I just put an overnight sell queue at $1.23 (which just nicely covers all commissions). It was filled at 11:30am, sold to a retail investor. Unfortunately STA's price shot up to a high of $1.29. Missed out on a small ang bao here :(

This whole episode was not worth it, even if I did manage to sell it at $1.29, for all the anxiety it caused.

I'm sticking to big ticket IPOs (Hutchinson Whampoa, GIC-linked) from now on.

 I believe however, that this stock is a pretty good one fundamentally. It provides exposure to a commodity which is in shortage currently, and has better fundamentals than the highly speculative GMG. STA's SGX PER is at 7+, Price/NAV at 2x, and also STA's plantations, which are mainly in the south of Thailand, while volatile, is a known danger to us in this region, rather than GMG's plantations in Africa. It also pays out 30% of profits as dividends, which while not spectacular, provides a nice margin of safety for the company to reinvest earnings. My main beef with it is the high debt level (4.5x FY2010 earnings) and volatile region exposure (South Thailand). I'd be alot more pleased to keep this stock were it's main plantations in Malaysia.


Since I believe in this stock, why did I sell it away? Discipline would be the answer I guess? I bought this strictly as a stag, and I believed (at that time), as it was a stock with exposure to a hot industry, it would be oversubscribed and would have had netted me a nice ang pao for CNY.

Also, I read somewhere that most IPOs fall back to their IPO pricing 6-12 months after listing, with some notable exceptions like Amazon.com, Google and locally STX OSV, GLP and MIT.

I'd prefer to buy this company then at a cheaper price.

And if it's story was still compelling then, yet at a higher price than IPO, why not?