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IPO

Part Payment or Full Payment

DLF IPO had an option that retail investors instead of paying 550/- per share, could pay a token 150/- Per share and Pay the rest after allotment.
ICICI Bank FPO also has an offer… instead of paying 950/- investors can pay just 250/- at the time of application and pay the rest within 6 months of allotment.

I am applying to ICICI Bank as an investment, hence I would pay only 250/- upfront and then 4-6 months later pay the balance. On the other hand my father is lured by the 5% discount that ICICI bank offers him and wants to encash it ASAP, hence he is paying the entire amount upfront.
A friend of mine asked me why would anybody make a full payment if the IPO/Offer allows part payment?
My answer (the plain old standard answer….) It Depends!

Why Full Payment
1) If the reasons you are trying to invest is because of “Listing gains” (i.e. you will sell the entire holdings the moment you get the possession of the certificates) Then it makes sense to apply in full. At the time of listing there is a price discovery mechanism which causes the prices to jump up and down a lot… hence improving your chances to make a killing at the time of listing.
2) Lured by the benefit of leverage, a lot of people will make a partial payment and will end up with a non tradable ‘OPTION’… hence reducing the supply of shares. Remember it makes perfect sense to sell the shares when the supply is restricted and you would not like to miss this opportunity πŸ™‚

Why Partial Payment:
1) Lure of leverage… (buy more than the amount of cash in hand) One of the reasons why I am rethinking my old strategy to invest in IPOs is because of the huge amount of capital that gets blocked for 20 days.
2) Long term investment… ICICI will 6 months time for investors to convert the partially paid shares into full shares. So I can effectively hold 95K worth of shares for 6 months by blocking just 25K (sounds tempting??)
3) Over subscription: If the company allows you to pay only 1/3 of the cost upfront and the issue gets oversubscribed 3 times…. well you will get 33K of shares by paying 33K instead of the full 1L.

48 replies on “Part Payment or Full Payment”

Lets put it this way…
3 weeks interest on 1L is about 750/- which is not a small amount… and if you are borrowing money to apply in IPO (which is not recommended but still a lot of people do) then the interest would be even higher.

in case of ICICI Bank the payment can happen after 6 months. (i.e. for a 97200 application, you need to pay only 250* 18* 6 = 27000) so on 70,200/- you can earn an additional interest of 4000/- plus your money is not getting blocked.

Most share prices of secondary ipos of listing stocks are controlled by the book runners in a tight band ,if u mite not have noticed take example of ONGC, secondly one cannot deny the nexus between the lead managers and the institutions which show big bids only to withdraw them before the ipo closes.
In the last icici ipo the shares during the float were trading at a premium, until the listing day but listed at a premium then fell well below the ipo book price.

when the time of pmt of the call arrived, its a different story that the markts turned and icici shot up later thanks to fii holding interest
thus if u intend for accuring ltcg go in for the staggared approach.

Personally i think that dlf is overpriced
but icici looks good for small patient investors

welcome to E-Nagar, thanks for dropping by πŸ™‚

//Personally i think that dlf is overpriced//
yes… i even blogged about it πŸ™‚ you should be able to pick the stock cheaper in the secondary.

//but icici looks good for small patient investors//
i am targeting about 1200 by March 2008.. yups it looks a bit too high considering that the stock has already jumped up 3 times over the last 2 years, but I am optimistic. in the short term you should be able to make 3-5% which for some is worth their while.

//Most share prices of secondary ipos of listing stocks are controlled by the book runners in a tight band //
i totally agree… why would anybody subscribe to the FPO if you can get the stock at a cheaper price in the secondary.. but you allot the the shares at too much discount then existing investors would rebel and short the share, sending it to a downward spiral.

//if u mite not have noticed take example of ONGC, secondly one cannot deny the nexus between the lead managers and the institutions which show big bids only to withdraw them before the ipo closes.//
i thought SEBI took care of that problem by forcing FII to pay 10% of the bid upfront.
but ICICI bank mega issue got oversubscribed 2 times on the very first day… so your hunch might as well be right.

//In the last icici ipo the shares during the float were trading at a premium, until the listing day but listed at a premium then fell well below the ipo book price.//
market forces… on the allotment day of the FPO, there was just too much supply… probably because retail investors got full allotment.(which they rarely expect) but I made a small fortune in the last issue… so it was ok.

//thus if u intend for accuring ltcg go in for the staggared approach.//
yups buying and selling in lots always fetches you the best price πŸ™‚

i did hear somethin about sebi action but such stuff are difficult to deter they can just change the bid before closure yes the crazy oversubs have gone down a bit but 10% is hardly some deterance..
ps watch the retail subs today 21 6pm
that is if u get the data -from the figs qib is at 10 times over – i think retail is bidding at cutoff, still quite thanda 10% subs though worse is shareholder catagory which has hrdly subs

Prax…
you can get the details on http://nseindia.com/content/ipo/ipo_current_icici.htm

as you had predicted of the 3376428 bids, 3018648 (90%) were at cut off.
75% of the QiB investment were by the FIIs (who for a very long time were not allowed to purchase shares in the open market because of ceiling)

if we wait for one more day, we can test your theory… and find out if the subscription will actually fall or not… my guess is it should not… but lets c.

actually i meant if u had got the data,i know abt the nse link, but ive been gettin it by mail nyways

first ive been out of the ipo mkt for a while now
i dont think in this case as this is too reputed an issue ongc was a huge monster plus the mkts were not as booming, try it out in spice and please do tell me

Retail Individual Investors (RIIs) 0.1027
Eligible Shareholders Reservation 0.0029

what do u think the book will be built at?

I had applied for DLF IPO using part payment option through ICICI Direct. I find that I have been alloted all shares. How do I pay the remaining amount. Will ICICI Direct allow online payment for that or I have to do something else.

u will get an allotment letter by physical mail from DLF, it will have the folio number of ur alloted shares.. u have to use that folio number along with ur demat account number to pay (via mail or at the collection office) to DLF… however rarely do the actual shared debited before the listing

lets just say that dlf comes out to be one nightmare for investors like me who have got max allotment of 180. what if the loss in these shares more then 27000 in the first week

can i just forget abt paying for the dlf ipo and sit back and relax with the loss of 27000 and may just plan to buy from 2ndary market,,

anyone has a clue what happens in such a case

the 27k or 150/- per share you paid is for the option…. i.e. u can choose to pay the balance…. you are under no circumstances obligated to pay to balance amount.
however looking at the trends…. Sunny I doubt that ur losses will be so huge that u will have to take the decision to forgo the allotment. remember recently there was a very good news about DLF winning a major contract, and this share is a good long term bet.

I have got an allotment of 180 shares and 27K remains paid as application amount. Can I make the part payment online through my demat account (if yes what is the process?)or should it be made in physical through cheque/draft with the help of folio no. you discussed….

sonia.. congrats on ur allotment. the online payment can only be made if ur broker allows it.. so you should better check with your online broker.

I have applied for ICICI FPO at a price of Rs 900/-. I applied under retail category which was undersubscribed. The floor price is determined as Rs940, will I get any allotment. If I get any allotment I’ve to pay the Rs40/- difference. Do you know how can I pay that?

Thanks Ankur for the quick response, I’d applied at the price of Rs900 – Rs 50 = Rs 850. However the retail sector was undersubsribed and the offer price is Rs 940-50 = Rs890/- will I get any allotment

nopes, I do not think you should be getting any allotment.. in case one sector is undersubscribed, the book runners have the freedom to allot those shares to other sectors (that frequently happens for employee reservations)
but then who knows, it just might be your lucky day. However, do update me if ICICI still allots you.

I got 180 shares of DLF after part payment. Can I pay the remaining amount online through ICICI Direct.com? Also.. I did the bid at Rs 550 while the price has been fixed at Rs 525- do I lose money?

Ankur, I did not received any allotment as you said. Will probably give a shot next time on something else

I have been allotted 180 partly paid shares towards my application in DLF LTD IPO. since I m currently not in India, I won’t be able to pay the rest of money through DD/Cheque. I can pay only online. PLease answer my below queries:
1>> what is the account number to which I pay the money(if online)?
2>> what if I don’t pay the rest of money i.e 67500. will the shares be allocated for the paid money i.e 27k or the whole money will be refunded??
3>> Can anyone give full details of the letter from Karvy. Like how the payment has to be made thru DD ,how the DD has to be taken ,is to be taken from any specific bank..and to whom DD needs to be addressed and payable at which place and how to sent the DD.
Also to which address DD needs to be sent .
Do we have to send a copy of notice letter also together with the DD ?

This will be very informative for people who haven’t still received the letter or who are not in India for this period.

Please help

Avinash
Karvy would be the best person to confirm if there is an online facility, but personally I doubt if there is an online account where u could pay. Reason being, your payment should be accompanied with the folio number of the shares… and online fund transfer does not give u that option to furnish those details.

If you do not pay the balance 67500/- within the stipulated time (plus grace period) the options will lapse and DLF is under no obligation to refund you the 27k you had deposited.

Thanks for your help Ankur. Would you be able to tell us, in what bank can we make this payment? SInce I am traveling, I can have someone make this payment on my behalf.

Also, do we need to deposit the letter as well, as in will the person depositing need the letter with him to deposit money?

Looking for an early response.

Hi Ankur,

I see in your messages above that you are providing very valuable information…I alos need help in finding out where do I need to send the rest of the payment for the DLF partly paid shares. Need info. like Payable to and where the cheque can be deposited.

will really appreciate your help.

hello,
i had applied for the dlf ipo through partly payment and i had allocated all the shares …but now i have to pay remeining amount in just a week but dont have that amount if i pay that amount after the due date than whats happen can i loose my shares or what happen????????

chirag…
officially you have an option that will lapse next week… so if the payment does not reach in time, DLF/KARVY can legally take back these options. but usually there is always a grace period.. just call them up, maybe they have a provision where you can pay a small penalty/interest.

what I would recommend is to borrow money (from friends, banks or from your broker) and pay in time. the stock has listed at a premium so it will be foolish to risk our hard earned money

Ankur, I had also applied for the DLF IPO part paymemnt mode. I never received a confirmation from Karvy about allotment, so have no idea about allottment number. Kotak, which I trade shares on confirmed on a question from me that I have been alloted 180 shares. All the lines to Karvy seem to be perpetually busy. Any suggestions?
Thanks

Okay, got the Bangalore numbers for Karvy 26621192/3 asked for a copy of allotment letter and got it immediately by email. The crossed cheque/draft has to be paid by 29th for Rs. 67500 made out to “DLF Limited – Allotment Money Account” and paid at specified ICICI Bank accounts in different cities.

Pls write DP Id, Client Id, and notice number on reverse of cheque. No ouutstation cheques. No part payment.

I have applied for ICICI FPO at a price of Rs 900/-. I applied under retail category, I got a notice to pay the remaining amount.. which i want to pay… how can I go for it.. Can I deposit cheque to any ICICI brach or I have to go only to the address mentioned in the notice (Corporate Head address in CP)as the notice has a detail which bank will fill and hand it back to me..Any suggestions…

1) its not the entire remaining amount but 250/- per share
2) you have to pay before 26th of July
3) the payment can be made at the ICICI bank branch listed in the letter or by mailing the cheque at the ICICI infotech head office

thanks a lot Ankur… May I know where do you work? if you dont mind..or you have a webadress where I can get in touch with you…

Regards, Sandeep

Hi Ankur

I opted for part payment, but made the rest of the payment on 11th July. Still the stock I have is untradable. Can you guess when the stocks will become tradeable?

Hardeep

I have received ICICI IPO allotment. They are now asking for only Rs 250 per share. The rest of the amount (890 – 500 = 490) would be collected later. My question – is this possible to pay the entire amount (250+490) now? If yes, how?
Thanks for your help!

@sisir…
no there is none.. plus whats the use dude… all the ICICI partially paid shares would be converted to trade able shares together… irrespective of whether u pay today or on the last date of payment.

I have been allotted 100 DLF shares through partial payment route. Even though shares have been transferred to my account, I’m not able to sell them. I got to know that unless I get a letter from DLF I can’t sell it. Is this true?? Is yes then when can I expect the letter and whom shall I followup with??

Thanks,
Godfather

@god…
you need to make the balance payment to ICICI Bank or send a DD to Karvy. on receipt of this your shares would me marked fully paid and trade able. BTW since you have already lost the letter.. you should use the link provided above and contact karvy directly

Ankur,
I have already made the balance amount to ICICI Bank and the money has been debited from my bank account. In fact I got to know from my Broker that the shares have been transferred to my demat account. But my broker is saying that unless I get an intimation from DLF I can’t trade these shares. Is this true?? If yes please tell me the way forward. Whom shall I contact for the same??

Godfather.

actually i was looking at the futures of ICICI.. which is being traded at a premium of 5%… so looks like the stock is expected to go up.

but before investing… do analyze the banks exposure to the foreign debt .. esp the sub prime lending.

@kamlesh….
dlf is trading at a heavy premium these days… and unfortunately the partially paid shares are not tradable/transferable… so I would ask you to take a 1 month loan to make the payment and sell the shares as soon as they get converted.
i am sure your broker/bank/credit card would help you in it.

Safaricom IPO – what a mess! (Opinion):Ati 5 bob with minimum 1000 serhas? Ridiculous! Is there political pressure or are the transaction advisors a bunch of morons?!!!According to BdAfrica, we’re talking of an additional 1.5 million shareholders in the Safcom Shareholder register.POST-IPO COSTS:Has anyone thought of the massive costs of organizing AGMs, Priniting Annual reports, sending out dividend cheques etc? At a macro level, Infrastructural and resource demands for processing a massive number of small value share allocations needs to be thought about!INVESTOR LOSSES:Serious investors lose out if all they get is a paltry 1000 serhas worth 5000 bob. Even if there is a massive bull run resulting un 500% increase – you only get 25,000 which is nothing to write home about – considering the hype! CONFLICT OF INTEREST:Perhaps there is a *conflict of interest* since transaction advisors, being brokers also, know that they will gain more commissions in a volatile secondary market if the number of speculative shareholders is very high! The buy-hold investor is not a stock broker’s friend!REFUND TRANSACTIONS:Then the number of refund transactions in case of a massive oversubscription will be *mind boggling* – and an unnecessary waste of resources and funds (due to expenses incurred)!OBJECTIVE ALLOCATION CRITERIA:IPOs should only be targeted at serious investors – not speculators! The allocation structure should aim to minimize the chances of massive post-IPO refunds which are detrimental to the economy (idle capital).We need sanity and stability in the secondary market. Considering the high value of the company and the need to minimize refunds, the serhas should cost approx 50 bob each and the minimum *value* of serhas bought during the IPO should be 100k-200k.INVESTMENT GROUPS:This will force jua kali investors to form organized investment groups and minimize risk of instability at NSE due to excessive speculation typically associated with such investors.HIGH NET WORTH INDIVIDUALS:We also need to consider “High Net Worth” investors as separate from corporate investors. E.g. our MPs and people like Chris Kirubi.Minimum allotment for such individuals should be 1-2 Million shillings per shareholder.ETHICSThe transaction advisors are being paid to do a job – let them do it properly – without turning the IPO into a future commissions cash cow for their own benefit!

@Melaine…
Its like democracy vs dictatorship…. in the short-term people always prefer dictators because of clarity of thought and faster executions. but democracies flourish int he long term.
similarly privately held companies don’t have to bend to whims and fancies of the common share holder and even save a dole on regulatory cost to send mailers and organize meetings for the share holders… but in the long run most privately held corporations are unable to transform into multi-billion giants who survive & grow for decades together

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