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How not to cancel an IPO

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By John Loh
30 Apr 2018

A spate of pulled IPOs in Asia offers some valuable lessons on how to make a graceful exit. Investors should not be left holding the short end of the stick.

IPOs rarely get called off in Asia once bookbuilding starts, but last week three deals met such a fate. SK Lubricants, Summit Power International and Qualitas Medical all scrapped their listings, citing volatility that meant they would not be able to hit their price targets.

The key difference between these deals, however, was their approaches to announcing the cancellations. In the case of SK Lubricants, its listed parent SK Innovation announced in a regulatory filing last Friday, the day the IPO was supposed to be priced, that it was withdrawing the deal.

Bangladesh’s Summit Power told investors on April 24 that market volatility had prevented it from going ahead. Bookbuilding wrapped up on April 20 and the IPO was due to be priced that same evening.

SK Lubricants deserves praise for shelving its flotation well before shares were allocated to institutional investors and before the retail offering. It was the right move, if only because the listing was set to tie up some $1.5bn in investor cash. The early cancellation — the company pulled its IPO in the morning, with pricing scheduled for that evening — gave investors a day to move their money elsewhere.

Summit Power, on the other hand, could have told investors before the weekend was up. But that delay appears brief compared with the staggering two weeks it took Qualitas to confirm it was shelving its IPO.

Calling off an IPO is well within the rights of any issuer, but it is important they bow out gracefully. In the case of SK Lubricants and Summit Power, their responses were acceptable amid what they viewed as adverse market conditions.

The example to avoid is Qualitas. There were early signs its Singapore IPO was facing problems when bookbuilding was extended by two days, coupled with price guidance towards the cheap end of the marketing range. Then the leads held off on pricing, citing continued discussions with key investors and the regulatory process.

For two weeks the message to investors was “this is a work in progress”. But the delay only served to fan speculation among market participants that the IPO was on the brink. Bookbuilding was initially supposed to wrap up on April 6, but it took until April 26 for the issuer to call off the deal.

Qualitas may have been doubly keen to get across the line as it had pulled a listing once before, scrapping a deal on Bursa Malaysia three years ago. At the time, it called off its IPO after pre-deal investor education, but before opening the order book.

It can hardly be blamed for trying harder to cross the finish line on its second attempt, but Qualitas’s management should have thought hard. The sensible option would have been to announce a speedy end to the process once it was clear the price was not to the management’s liking. Keeping investors guessing is no way to ensure their participation in any future transactions.

Cancelling an IPO is one of those decisions that tends to leave issuers red-faced. But it's better to have a red face than lose face entirely. Qualitas has ensured that its IPO attempt will be remembered for all the wrong reasons.

By John Loh
30 Apr 2018