Market report
CUSTOS
A feature of equity markets at the moment is the poor reception being given to new issues. Two have recently failed to attract a full sub- scription from the public—Wingard and Varnev —leaving the underwriters to take up the balance. Many more have sold at levels well below their issue price in early dealings.
What is going wrong? One factor is the de- cline in the general level of the market, now 8 per cent below its September peak : there is a widespread view that the long bull market, which started in November, 1966, is ever.
Second, the very filet of the bull market has stimulated a number of below par flotations. The long period of rising equity prices seemed too good an opportunity to miss. So a number of companies shuffled forward which would never normally have considered a public quota- tion.
Third, the Labour government system of company taxation is swelling the flow of new issues. The onerous fiscal provisions now appli- cable to small companies can be lightened if 35 per cent of the equity is sold to the public. And finally there has been a failure of City technique. I refer to the use of the tender for new issues. This means that the issuing house sets a minimum price for an issue and asks the public to submit bids. At first the system worked well. A rather cautious public tended to put in low tenders, with the result that a small premium was established in first dealing. Then the brighter sparks realised that you ailL1 could make sure of an allotment at the common striking price by bidding high. But soon every- body started bidding high to ensure an allot- ment. The upshot was that the new issue in question was sold off at a price which was in excess of what the market its a whole was prepared to pay and so started life at a dis- count.
Previous page
