Courts Asia

[propertyinvestor]

The share price drop back to IPO price of $0.77, with the highest volume of 8.5 mil shares. Total volume today is 10.2 mil shares

Stabilizing Action
4,939,000 @ $0.765 to $0.77

Hmmm, if the share price keeps falling, does that mean that the stabilising manager will lose money despite earning fees for underwriting the IPO?

If my understanding is correct, they'll make more $$ if they buy at below IPO price for the stabilizing action. Here's my understanding of how this works,

When an IPO is over-subscribed, the underwriters will exercise their Over-Allotment option ie. borrow some units from the vendors to over-allot (ie. more than the original nos. of shares) to successful IPO applicants.

The same nos. borrowed from the vendors will now be equal to the nos. that'll be used by the Stabilizing Manager (they changed their hat) to buy from the Open Market (upon listing) to provide price stabilization (to prevent it from falling too much and too fast). After the stabilization period (usually 30 days), whatever they'd bought (up to the limit borrowed) will be returned to the vendor.

So, if they'd managed to buy from the open market at below IPO price (no stabilizing required if above IPO price), they'll make the difference. If they're unable to buy any or all (the borrowed units) from the open market, their agreement with the vendor is that there's no need to return ie. Vendor happily have a smaller stake in the IPOed entity.

So, looks like a sure win situation for the Underwriter cum Stabilizing Manager to me... as long as they're able to place out all units. Now, we wonder why underwriters are so eager to create and package new 'instant' companies for IPOs... as long as they can create a compelling story for suckers oops.. I mean investors, to rush to grab such IPO units...

The bank's interest is always protected