A Lotte to Think About

I find it very amusing every time a market commentator talks about an “unsuccessful” IPO, the latest one being Lotte Chemical whose share price has dipped below IPO price. Unsuccessful for whom?

These commentators are of course referring to investors who supposedly lost out, and not really the issuer who probably got a fair-ish price for their shares. This is a good thing for the company and long-term shareholders when the money raised is being used for growth leading to better future share price returns.

Lamenting about post-IPO prices is exactly the kind of short-termism that plagues our capital markets today.

In the first place, why did the complaining investors pay a particular IPO price if they didn’t think it was fair? Are they expecting the issuing corporation to guarantee prices post-listing? The last I checked, that’s not how it works because I read that as an investor, you’d have to bear this thing called ‘risk’. Since when was it the job of corporations to manage decent short-term trading profits or stability for traders?

Which also leads me to ask why ‘cornerstone’ investors need to be given special privileges to jump queues. Isn’t this a kind of corporate corruption that’s bad for capital markets development?

One common argument is that cornerstones are “good” shareholders because they hold for the long term. Is the issuing corporation then saying that the quality of their shares isn’t good enough to attract good shareholders that they need to give a bulk-buy discount to queue-jumping cornerstones?

The truth is that companies need to worry more about long-term cashflow growth than short-term price performance immediately after IPO. Getting your house in order would be the best post-IPO price management strategy to take.

One thought on “A Lotte to Think About”

  1. hi Julian, I slowly get the point the whole blog & message. Heard from you this am at KL Young Lawyers event. Loss avoidance should be higher in priority rather than maximum gains. It’s less sexy, but that’s how you preserve and thrive on the wealth. Keep on writing the good stuffs!

    Liked by 1 person

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