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Wipro's stake sale by the Azim Premji Trust on Wednesday ended up being undersubscribed. The IT heavyweight got bids for only 71 per cent of shares on offer for sale at the end of the bidding period. Though it remains unclear as to who were the subscribers to the stake sale, some market experts said they expected a majority of the stake to have been picked up by institutional investors. This category prefers this auction route to the open market route to pick up a large number of shares at a price advantage, said analysts.
In an earlier statement, the trust had said that a quarter of the shares would be reserved for mutual funds and insurance firms provided their bids come above the floor price. Any unsubscribed shares shall be available to other bidders.
The Azim Premji Trust which held 8.66 per cent or 213 million shares, in Wipro at the end of 2011 December quarter according to the BSE data said that it has plans to utilise the proceeds from the auction for scaling up the activities of Azimji Premji Foundation. The endowment supporting the foundation is held by the trust.
Some analysts believed that the under-subscription was due to the poor performance of the Wipro stock in the last several quarters compared to its peers and overall weak outlook for IT stocks. Others believed it was the non-disclosure of the floor price till the end of market hours that worked against its favour. “In this case investors were not aware of the price at which the book was getting built and they felt that they were just shooting in the dark,” said SMC Global Strategist and Head of Research, Mr Jagannadham Thunuguntla.
lessons learnt
On the lessons learnt through testing of this new stake sale system, Mr Thunuguntla said that Wipro's under-subscription was a “wake up call” for promoters using the newly introduced auction route to sell promoter stake in order to comply with SEBI's minimum public shareholding guidelines.
“Even if you are a big company like ONGC or Wipro, you have to have a reasonable floor price to succeed in such an auction besides having quality of assets. This is only the second such sale through the new method so the system is still evolving and many market participants, issuers and investors are still not aware of this mechanism. As people get more familiar and savvy with it, the system might throw up smoother results for such auctions,” he added.
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