Listing on stock exchange should be limited to healthy companies

The Capital Market Commission wants to radically revise the process for listing a company on the Athens Stock Exchange (ASE) in an effort to improve quality and boost the credibility of the Greek market. The listing of a large number of small firms of dubious quality and limited prospects has long become an epidemic. The results have been extremely disappointing. Instead of the ASE functioning as a lever, boosting economic growth by giving healthy businesses opportunities to grow, it has become a sanctuary for talentless businesspeople who want to achieve institutional legitimization and find a publicity forum to boost their social standing. Above all, however, they seek to float, and get rid of, as great a stake in their businesses as they can, at the best price they can achieve. Asylum for incurables A strange conspiracy of silence has allowed the ASE to resemble a sort of parking lot for expensive but flawed cars. The current law makes it easy to list firms with accumulated losses, weak capital structure, dubious profitability and non-existent productive activity. Another thing that hurts the market’s credibility is the fact that most newly listed shares are priced too high. This makes it almost inevitable that, shortly after their listing, these firms begin to slide to far lower levels, trapping expectant investors who then find themselves with little prospect of gains. This makes one wonder why these investors, even the few who still bother to put their money into new listings, keep doing it. The data available is revelatory: Among the 44 shares that were listed on the ASE since the beginning of 2002, 33 are currently trading lower, up to 65.15 percent, than their initial public offer (IPO) price. (Other firms, who entered even earlier, during the period of extreme volatility following the 1999 bull market, have fared even worse. The share of Kathimerini SA, was at 5.84 euros at last Friday’s close, 66.3 percent lower than its IPO price of 17.02 euros on March 9, 2000. It was one of the first – if not the first – stocks not to experience a triple-digit rise in the days following its IPO.) The reasons investors still bother to invest in new listings is often the result of rumors. Also, there are widely circulated stories of dubious practices regarding the «coverage» of a new issues. These involve huge discounts being given to certain investors in order to ensure the sale of all shares on offer and to provide the necessary ownership spread. At least the Capital Market Commission is aware of what is happening. And, with a recent change in leadership, it appears determined to tackle the issue. Necessary changes It is necessary that only dynamic firms, with a healthy capital structure, be allowed to be listed on the ASE. There must also be guarantees that the IPO price is reasonable and does not include inflated expectations of future growth. Investors are responsible for the risk they undertake but should not be condemned to lose. The bookbuilding process should be made transparent and the final price of the stock determined by all offers, not just those of institutional investors. The minimum number of shares for which a single investor must subscribe should be lifted. Subscriptions for 10, say, shares do not come from small investors but are part of other kinds of games. Finally, the IPO prospectus of companies must become a reliable source of information to prospective investors.