Stock Commentary

Repower Energy Development IPO is today

Merkado Barkada

July 24, 2023 | 8:49am

Repower Energy Development [REDC 5.00] will start its life on the PSE this morning, after what was generally a very quiet offer period. There were a total of 230 million shares available between a 200 million primary share firm offer and a 30 million share over-allotment option that was funded with secondary shares. REDC is a renewable energy developer that specializes in run-of-river hydro projects, which look to generate power through smaller rivers without the need for massive flow-disrupting dams. All of the proceeds from the sale of the primary shares are slated to be put toward project development.

IPO Allocation Poll:  Lured with the chance to win one of two P500 Grab Food vouchers, 120 readers responded to the poll and provided feedback on the REDC IPO, the number of shares requested, and the number of shares received. Of the 120 readers polled, 29% applied to purchase IPO shares, while 71% did not.

Allocation rates:  Readers reported requesting 437,700 IPO shares worth P2.18 million, and receiving an aggregate allocation of 324,200 worth P1.62 million, for a 74% allocation rate. The most popular method of purchase was the PSE EASy platform, which had an allocation rate of 95%. The top broker by volume was COL Financial with an allocation rate of 97%. The worst-performing broker, by allocation rate, was AP Securities with 0%. Only 10% of readers reported receiving any feedback from their broker that the IPO was oversubscribed.

Reasons for avoiding the IPO:  There were a number of reasons why the 85 non-purchasing readers avoided the REDC IPO, but the most popular was “market conditions” (40%), followed by “seemed to expensive” (15%), “not the right fit for my portfolio” (13%), and “no money” (12%). A few write-in responses gave some insight into other issues that are weighing on retail investors’ minds, such as “will wait first”, “majority of IPOs are down on the first day”, “IPOs are mostly failures”, and, of course, “sleepy”. I feel that one.

Is it oversubscribed?  Probably not. We don’t have insight into the institutional tranche of the IPO, but we do have some insight into the broker tranche and the PSE EASy tranche, and that insight leads me to think that the vast majority of requests that were made by retail were satisfied. While there were a few fractional allocations noted by readers that requested shares from specific brokers, 88% of the unallocated shares came from a single reported request of 100,000 shares with AP Securities that went completely unallocated. Was that report accurate? I don’t know. I don’t like to eliminate data points, but if we do leave that one out-sized point aside, the overall allocation rate jumps up to 96% with only a few minor fractional allocations from AB Capital and COL Financial. From a retail perspective, it’s safe to say that this IPO was not oversubscribed.

MB Bottom-line: Like nearly all IPOs these days, REDC will have a stabilization fund, so its first day of trading will not subject the stock to the raw, uncensored opinion of the market. It’s going to have access to a modest pool of artificial demand if the price dips below the P5.00/share IPO offer price. The question is, will REDC need it? I don’t know for certain, but what I do know is that retail was not extraordinarily interested in this IPO, and recent renewable energy IPOs like Alternergy [ALTER 1.00 3.9%; 43% avgVol] and Raslag [ASLAG 1.40; 282% avgVol] are down 19% and 30% from their IPO prices, respectively.

If the greater market manages to get some momentum and start to build a case for a new bull run, perhaps REDC can catch that wave and avoid the losing fate of every single non-REIT IPO for the past 18 months. Unfortunately, the opposite is true as well. As the PSE brushes up against this major point of resistance, there’s just as great a chance that the market heads back down into the low-6000s, dragging REDC down with it.

So while the stabilization fund will provide some support, it’s not a guarantee against loss, and investors can’t rely on a large cohort of unsatisfied IPO demand to add much (if any) wind to REDC’s sails. Out of the last 13 IPOs, only one has lost on its opening day (Balai Ni Fruitas [BALAI 0.52 1.9%; 17% avgVol] [-7%]), and two have finished flat (ALTER and Vista REIT [VREIT 1.66 0.6%; 134% avgVol]). Everything else has finished in the positive. But in our market, it’s not what happens on the first day that we need to be careful with, it’s what happens after. Long-term, only SP New Energy [SPNEC suspended] is trading consistently above its IPO price. That said, I love IPOs because you just don’t know what’s going to happen. Now if you’ll excuse me, I need to make some popcorn before they ring the opening bell!

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