Companies get innovative – IPO Mart


Companies going for initial public offerings are adopting innovative ways to woo investors. For instance, the recently concluded offering from GMR offered retail investors a 5% discount on the issue price. An upcoming IPO by Orbit Group, a real estate company, has pushed the boundaries a little further though.

Orbit has promised retail investors a warrant along with each share that is allotted. Warrants are instruments issued by a company that makes the investor eligible for a share at a future date. In Orbit’s case, the warrants it issues can be converted into equity shares 18 months after the listing, say sources close to the IPO.

The arrangement works like this. If the share prices go below the listing price 18 months after day it was listed, shareholders can cash their warrants at a 30% discount to the prevailing market price. On the contrary, if the stock price appreciates, they can make a sale at a 10% discount. In a volatile market, shareholders are set to gain from this. The money they have invested is thus secure.

This is the first time in 13 years that a company is coming up with warrants in its IPO. Another company Reliance Petroleum public issue has a similar insulation for investors. The company offered an instrument that was termed as triple option convertible debenture (TOCD)

Maruti Udyog an Indo-Japanese automobile manufacturer also had an arrangement to protect shareholders investments during its IPO. The company offered an option of buying shares from the investors for a period of six months, if the value of shares went below the listing price.

Orbit specializes in redevelopment of old properties. Based on the projects it is currently working on, the company has been valued at $160 million. The company sources said that the company has also raised money by selling 17% of its equity to foreign financial investors.