Icon property listing clause stirs
Debate has ensued over a clause in the new property firm Icon Properties’ prospectus with Minority Shareholders Association of Malawi (Msam) arguing the Green Shoe option could kill competition while market analysts think otherwise.
Green Shoe option refersto a provision in an underwriting agreement that grants the underwriter theright to sell investors more shares than originally planned by the issuer ifthe demand for a security issue proves higher than expected.
On Friday, Icon Properties Limited issued 1.68 billion shares through which it hopes to raise K14.7 billion through an initial public offering (IPO)–issuance of shares for the first time to the public by a company through the primary market–on the Malawi Stock Exchange (MSE).
According to information contained in the Icon Properties prospectus, in addition to the K14.70 billion subscription, the company will have a Green Shoe Option in place which will give the company the right but not the obligation
to buy oversubscribed shares to raise an additional K3.68 billion.
Directors will then retain the discretion to amend the allocation formula for the IPO as deemed fit, having regard to the strategic benefits derived from a diverse shareholder base, after consultation with the advisers.
But Msam general secretary Frank Harawa told Business News on Saturday that the Green Shoe option could kill competition on the market.
“I think although the price may sound a bit expensive, but because the listing comes 10 years after there has been a listing on MSE, there is excitement on the market with a lot of enquiries.
“But, we find the Green Shoe option not a good thing to do because at the end, there will be nobody needing more shares.
“Therefore, they shall have killed the competition to push the price up which will be bad because other people shall have borrowed money from banks to finance this and for them to satisfy everybody beyond their IPO figure, I think it is very unfair for the investors.”
Market analyst Armstrong Kamphoni, on the other hand, feels issuing more shares is a good indication and that it could guarantee equal share price.
“But the opposite of that is that if investors only take less shares, Icon will have to raise the remainder which will come at the market during secondary trading after listing and then the price won’t be K8.75 as you know share price will start rising. So, it means that those people will be accommodated in the secondary market, but there is no guarantee that they will buy at the current price,” he said.
MSE operations manager Esnat Suleman said Icon’s listing will provide investors with more options for diversification of their investments and also contribute to improved liquidity.
Icon Properties Limited director Vizenge Kumwenda told journalists on Friday the IPO, which officially opened on Friday until December 28 2018, after which the firm is expected to list on MSE on January 19 2019, is always a good opportunity to unlock the true value of a company, while at the same time giving investors an opportunity to make a decent return.
Icon Properties has 35 properties valued at K50.04 billion with a total lettable area of 72 630 square metres.
Its shareholding comprises 16 firms.
