Strange, but true: Employees not too keen on their company IPO

Even as investors scramble to invest in initial public offerings, employees of the companies don’t seem to be too interested.

Of the 51 IPOs since 2013, 15 had a portion reserved for employees. Data from PRIME Database show that in IPOs where a portion was reserved for employees, the category was undersubscribed in most cases even when other categories were over-subscribed. This is the case even when companies offer discounts to employees.

Under the SEBI regulations, the employee quota cannot exceed 5 per cent of the post-issue capital of the company.

Nine of these 15 IPOs were under-subscribed by their employees even as the response from other investor categories was enthusiastic. They are: Alkem Laboratories, Inox Wind, Quick Heal Technologies, InterGlobe Aviation (IndiGo Airlines), Sadbhav Infrastructure Projects, Bharat Wire Ropes and GNA Axles.

For instance, last year’s Inox Wind’s primary market offer was oversubscribed — 15.7 times by qualified institutional buyers (QIBs), over 36 times by high net worth individuals (HNIs) and over 2 times by retail investors. The company’s employees, however, subscribed to only a tenth of the portion reserved for them. It was the for Quick Heal Technologies. The IPO was oversubscribed — 2.4 times by QIBs, nearly 37 times by HNIs and 3.7 times by retails investors. But employees subscribed to only about a fifth of the shares reserved for them.

The trend in the recently concluded PNB Housing Finance IPO too was similar.

The IPOs of Repco Home Finance in 2013 and Coffee Day Enterprises in 2015, however, witnessed tepid interest from other investors too.

So, what explains such behaviour? According to JN Gupta, Co-Founder and Managing Director, Stakeholders Empowerment Services, a proxy advisory firm, this could be because many employees may be hopeful of getting ESOPs (employee stock ownership plan) and may not be willing to stick their neck out in IPOs. “It could also be because of a genuine lack of equity culture,” says Gupta.

There are also other instances of relatively unenthusiastic participation by employees. The IPOs of Teamlease Services, Equitas Holdings and Parag Milk Foods were a little less-than-fully subscribed by employees but were massively over-subscribed by other investor categories.

According to Subhrajit Roy, Executive Director and Head-Equity Capital Market Origination at Kotak Investment Banking, it’s simply a case of not right-sizing the employee quota. The number of employees or the potential subscription ability of employees may be lower than the number of shares reserved. “Also many employees may not be interested in the equity market investments in the first place,” adds Roy.

The IPOs of PNC Infratech, Mahanagar Gas and Advanced Enzyme Technologies were among the exceptions; with subscription of more than one time in the employee quota.

Under-subscription by employees, however, seems to have worked in their favour in most cases. Apart from Repco Home Finance (price has more than tripled), Alkem Laboratories (up 18 per cent) and InterGlobe Aviation (up 7 per cent), other company stocks where the IPOs were under subscribed by employees have performed poorly.

Inox Wind, for example, has lost 51 per cent since April 2015 and Coffee Day Enterprises 18 per cent since November 2015. Sadbhav Infrastructure Projects and GNA Axles too are a tad down since their listing and Quick Heal Technologies is up only 1 per cent since February 2016.

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