12 Jun 07 DLF IPO, Cash Incentives and IPO scams
Inorder to aggressively push the DLF IPO to retail investors, brokerages and agents are pushing the IPO by using illegal methods like providing cash incentives to investors. A leading Indian daily reported that Kotak securities is offering very high commissions to brokerages on a per application basis. This money is not paid from K.P. Singh’s pockets. It would be charged as issue expenses and will be paid using the shareholders money raised through the IPO. At the end of the day the investment banks and lead managers make money and so do the brokerage firms and sub brokers, all at the cost of the poor retail investor. There is another type of incentive which is being offered where agents are paying investors upto Rs. 2500 for applying in the DLF IPO for DLF shares worth Rs. 99,000. On allotment, the DLF shares will be transferred to the agent who will pay the investor Rs. 2500. The agent will then pool all the shares and sell the shares in the secondary market and will make money if DLF does list at a huge premium to the issue price. Now, how different is this from the IPO scam involving Yes Bank and IDFC which rocked the markets about a year earlier? Is Mr. Damodaran and his team listening?
P.S. This scheme though illegal seems to provide good returns for investors with no risk (default risk does exist). The ROI offered is over 2.5% which translates to over 30% on an annualised basis. I wonder how the agents are so confident that DLF will offer higher returns on listing.
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