Monday, 6 August 2007

How to lay your hands on the placement shares?


I have shared previously on some "tips" to increase your chances of getting IPO shares from the public tranche. I think many of you are still frustrated by the low probability of getting IPO shares from the public tranche (looking at the current poll results so far).

Today I will share with you some tips on how to increase your chances of getting your hands on the placement tranche. Before we discuss the various 'tips', we must first understand the view point of the placement agent and underwriter.

Imagine you are acting as a placement agent for an IPO and you want to ensure that your IPO is a success, what are the criteria you would set for the investors you place those shares to? Would you want to place your shares to investors who will sell on the first day of trading or would you prefer to place out the shares to reputable investors who will boost the profile and awareness of your IPO? Well, here are some tips that may just help you get some placement shares that you dream of.

Tip 1: Change your name to Mr. Temasek

If your name is Temasek, placement agents will be begging you to take their IPO shares so that they can put your name down in the IPO announcement (or 'IPO Tombstone"). Temasek is known to be a longer term investor and by having such an anchor investor in your IPO, it will sure attract the attention of other investors to support your IPO. Similarly, if you belong to the "Elite Investors Group", placement agents will be offering their IPO shares to you on a platter. Elite Investors Group are reputable investors who will raise the profile and value of your IPOs and may even help placement agent to 'support the price' post-IPO. Example of investors who belong in this Elite Group will be investors like Tommie Goh and Gay Chee Cheong (2G Capital), David Loh and Han Seng Juan (Centurion Investment Management), Koh Boon Hwee, Ooi Hong Leong (Chip Lian), Sam Goi (Popian King) and professional funds such as Dubai Investment, Morgan Stanley, BNP, etc. Usually these investors will take up about a huge chuck of the IPO placement shares and so-called "anchor the IPO". The placement agent will be quite confident that the IPO will succeed because of these anchor investors. If you belong to these Elite Group or if your name is Temasek then you dont have to read further.... hahaha :)

Tip 2: Concentrate your trades in a securities firm that do IPOs.

If you dont belong to the Elite Investors Group, then you must try to get yourself in to the remaining 1,000 public sharesholders which they must place the share to in order to fulfil the listing requirement. These investors are usually allocated between 3 to 20 lots each to allow the placement agent to meet the minimum shareholders requirement. My tip to you will be to concentrate your trades in one securities firm. Dont open a trading account with Lim & Tan, go and open a trading account with DBS, Kim Eng, UOBKH, CIMB, Westcomb and even Philips Securities! Concentrate all your trades at one of these brokerage houses so that when you demand placement shares from your broker, you can 'talk louder' and your demand can 'carry more weight' if it is backed by 'paid commissions'.

Tip 3: Get a dealer, not a remisier.

Why do i say that? Dealers usually work for the brokerage firms and they are usually not allowed to handle their personal/relatives' trading accounts. In this regard, there will be 'less hanky panky' as they will have to justify to their superiors on why they allocate the placement shares to you. They also get more IPO placement shares over their remisiers counterpart because the Company will earn a bigger chuck of the commision from dealers. On the other hand, remisiers have more freedom in whom they allocate the placement shares to and sometimes some remisiers may just allocate them to accounts which they have vested interest. It is also true that remisiers will have less access to IPO placement shares versus the dealers.

Tip 4: Join the IPO club if there is one.

IPO club are open to investors who are willing to participate in ALL the IPOs underwritten by the brokerage firm. In this aspect, investors have to accept the IPO allotment regardless of whether it is a good IPO or a bad one and in good times as well as bad times. If your broker offer you the chance to participate in the IPO, grab it. The rationale is that brokerage firm will usually not launch any IPO during bad times because if the shares are not fully subscribed, the brokerage firm will have to 'underwrite' those shares. DBS and UOB have IPO clubs but they may be 'open for enrolment' only during selective period (like beginning of the year) or to selected people (the high net worths or those who trade a lot through the company). Stay long enough with these securities firm and you may be offered some placement shares. In addition, some securities houses offer internet users some placement shares as well. (e.g. DBS and Westcomb).

Tip 5: Tell your broker you are interested in placement shares and tell them way in advance.

By the time you see the IPO for public tranche is launched, it usually means that the placement tranche has been fully subscribed as well. As such, you will have to be more pro-active to check out the MAS Opera website to find out which offers are pending approval and indicate your interest to your broker if their brokerage house is the underwriter or placement agent. Always tell your broker that you are interested in IPO placement shares so that they will not 'forget you'. If you dont ask, how will your broker know? There is a hokkien saying "脸皮厚厚,吃到老老" just ask your broker for the shares. But again, this will tie back to tip 2 again. If you have generated a lot of commissions for your broker, then your chances of getting the placement shares will be higher.

Ok i will just share these 5 tips for you. Hope you will find them useful to help you lay your hands on those placement shares. Looking at the way the market is 'crashing in the US and in Asia', I am not sure if the IPO window may be closing soon. If you are those who have never received calls from your broker, you may soon be asked by your broker whether you want those placement shares?! and during those times, you may not want the placement shares anymore... well, this is the irony of life isn't it? :)

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