On 16 June 2017, HRnetGroup’s IPO on the SGX Mainboard created much hype among retail investors and local finance bloggers. Many investors had wanted a slice of the IPO because of the excellent financial performance indicated in the prospectus. But many investors may not be aware of Temasek Holding’s Pre-IPO investment in HRnetGroup.
What is pre-IPO and does it matter to you from the perspective of a stock investor? Read on to find out how the big boys make money in this game.
HRnetGroup and the big boys
Fundamentally, how big boys like Temasek Holdings make money is very different from retail investors in the market. Most of us made money upon selling the shares allocated during IPO. But then again, there is no guarantee that you would be allocated the IPO shares because for the public, the shares are allocated through balloting. There is also no assurance that the share price would rise above the IPO offer price. In short, for the man in the street, it is like punting when it comes to IPO.
However, pre-IPO works in a different manner. Big boys like Temasek Holdings want certainty in their return of investments and they also want to win the game. In return for a sum of initial capital, they would demand for a portion of the IPO in the form of pre-IPO shares. Usually the pre-IPO shares would be offered at very dirt cheap level, maybe at only a fraction of the IPO price. After two or three years, the big boys would slowly divest their shares at market price to make explosive profits.
Hence, big boys make money at the point of buying the pre-IPO shares because of the safety margin given to them. This is how the rich become richer.
Most investors have been asking why HRnetGroup chose to go for equity financing instead of debt financing. They don’t realize that pre-IPO is the real money to be made for both the listed company and the big boys.
Take for example, HRnetGroup offered placement of 85.6 million shares to private investors while only 3.8 million shares to the public. Imagine if the placement shares were offered to the big boys at only [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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