Possibly looking for the same returns achieved by investors who participated in the IPOs of previous government businesses listed on the ASX, self-managed super funds (SMSFs) are reported to have swamped the Medibank Private IPO.
Investors saw returns of hundreds or even thousands of percent from the listing of the likes of Commonwealth Bank of Australia (ASX: CBA) and even decent returns from Aurizon Holdings Ltd (ASX: AZJ) – previously Queensland Rail.
Now anecdotal evidence suggests those investors who applied through the broker offer have been massively scaled back, and will likely prompt a similar response for those investors subscribing under the general public offer. Brokers had applied for $12 billion worth of shares, but received an allocation of just $1.5 billion, and further clawback rules suggest they could lose another $300 million (20%) of that, if retail demand is strong.
With the minimum subscription amount being $2,000 and assuming a price of $2.00 per share, many SMSFs may be tempted to massively oversubscribe, in the hope that there is a scale back and they get a much lower allocation of shares.
But that could have a number of adverse consequences. Massive 'false' demand could see the government price the offer at the top of its range of $2.00, with many analysts viewing that as an expensive price to pay for the Medibank business. John Abernethy from Clime Investment Management values the company at around $1.65, with a good buy around $1.50.
It could also see investors, disappointed by the scale back size, dump their shares on the market when Medibank lists in early December – especially when they realise Medibank won't pay a dividend until September 2015.
The problem for SMSF investors is that the IPO has caused plenty of market noise, and many won't want to 'miss out', regardless of the price. As one of my colleagues noted earlier today, "The Medibank IPO is really an interesting case of investing psychology, rather than business analysis."
I, for one, have considered my position and won't be applying for shares in a fair-to-decent business at an expensive price, especially when there are many more cheaper stocks that will pay me a dividend early next year, as well as later in 2015.
