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 🙂

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.

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49 thoughts on “Part Payment or Full Payment

  1. @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

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  2. 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.

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  3. 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.

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  4. @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.

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  5. 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!

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    • @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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