SOFIA (Bulgaria), June 24 (SeeNews) – An upcoming initial public offering (IPO) of the Railroad Infrastructure Holding Company will hardly revive Bulgaria’s falling stock market, analysts said.
The company will launch on Wednesday its IPO, the first one on the Sofia bourse since March. The issuer will seek 27.9 million levs ($21.9 million/14.3 million euro) to finance its 65 million lev investment into upgrade of its facilities until 2014.
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"I think it will not have a significant impact on the market. It will have a positive effect if it attracts foreign cash,” Blagovest Krachev, a broker at Karoll brokerage, told SeeNews.
“Howеver, there is no way for these less than 30 million levs to lead to a revival of the market and increase the interest of other companies in bourse listing,” he added.
The company plans to issue up to 5,583,411 shares with a par value of one lev each and a minimum issue price of five levs.
“The market as a whole does not offer the best conditions for raising capital at the moment,” Petko Valkov, managing director of Sofia-based Benchmark Asset Management, told SeeNews.
Share prices on the Sofia bourse have been mostly falling since November as foreign investors largely withdrew, making many companies to freeze their previously announced plans to go public.
Bulgaria’s stock exchange saw a boom of IPOs in 2007, when companies like Corporate Commercial Bank (Corpbank) going public lifted prices and liquidity. Industrial group Chimimport's IPO in 2006 paved the way for other successful offerings. Both IPOs drew foreign investor interest.
“This high price does not suggest oversubscription, that's why I don’t think that the issue will affect the whole market,” said Tsvetoslav Tsachev, head of research at Elana Trading brokerage.
“If there is an oversubscription, an euphoria on the market, this is a good thing for the market for sure but it will be a short-term effect and will not reverse the trend,” Tsachev added.
Krachev agreed that the minimum issue price in the forthcoming IPO was high and added: “People are weighing risk much more carefully at these moments as compared to moments of euphoria.”
Tsachev, Valkov and Krachev said that an oversubscription was unlikely. Valkov said a possible oversubscription would only have a short-term positive effect.
“Back then [in 2007] the market believed that there was a lot of cash to come to the stock exchange. I don’t see this happening now,” Tsachev said.
Investors who have sold portions of their portfolios lately might invest the free cash in Railroad Infrastructure's IPO, but they are likely to do so only with their eyes set on a quick sale in the first days after the start of trading of the company shares on the bourse, Krachev said.
“Maybe a lot of offshore companies will participate. We'll probably see foreign investors as the IPO would hardly be subscribed for without their participation,” Valkov said.
Valkov sees the concentration of the company's revenue into one or two main clients as a weakness of the company's business plan.
“The sector is interesting, there will be a lot of business, it is true, but this business is done with [state-owned railways operator] BDZ, one of the hardest-to-handle payers in the country,” Tsachev said.
“The company has potential and bearing in mind that the railroad infrastructure is in a poor shape, a large part of investments will be directed into the sector but because the [stock] market does not offer the best conditions, I think that probably the issue will be subscribed at the minimum price,” Valkov said.
(1 euro = 1.95583 Bulgarian levs)