Finally Something We Can Both Agree On: Grameenphone's sham IPO

This is probably how the conversation went before the Grameenphone IPO filing:

Yunus: "I think we should help the poor partake in Grameenphone's IPO"

Jensen: "How do you suppose we accomplish that?"

Yunus: "Well I thought pricing this share at Taka 1, would be more than enough as the poor will be allowed to get into the stock market with the money with the money borrowed from Grameen Bank"

Jensen: "I think you have a very excellent idea, may I also suggest a 17 taka premium? That would only mean a 18 taka share price, clearly affordable"

Yunus: "Yes 18 taka is quite reasonable considering some shares hover over 2000 taka"

Jensen: "Yes, a 17 taka premium means a 1700% premium. If the SEC rejects this proposal, we will cut it down to a 900% premium. That only means a 10 taka share. The SEC will put up a small fight, but then we will negotiate it at Taka 10. Still a huge premium"

Yunus: "But won't the SEC still object"

Jensen: "Compared to our initial filing, this new 900% premium will look like a bargain. Also think about it this way, for the rest of eternity we will issue dividends on a face value of 1 taka."


Now readers, if you had any aspirations of being a proud owner of a Grameenphone stock, lets calculate your investment. The SEC has never given a premium over 50% in the last 10 years. Most stocks were limited to a 25% premium. Grameenphone seems to think that they can eyewash everyone with the affordable price but with a 1700% premium. The highest premium ever for Bangladesh, making it the most unaffordable stock at the stock exchange.

Dividends won't add up
How does the economics work out? A 25% dividend is considered a good dividend in the stock market. But with Grameenphone it will be the opposite. Clearly Telenor did not pay 18 taka for a 1 taka stock and this 25% dividend suits them just fine (also they can adjust the machinery invoices easily - i.e. pay Telenor Pakistan for 'new' machinery). But for you, who just spent 18 taka on this stock, what does this mean?

Your returns vs Telenor
It means that you get 25% of the stock's FACE VALUE. The face value is 1 taka. Hence it for your 18 taka investment you are getting a 1.38% return on your investment. This is the price you will be paying when investing in this stock. Telenor is making more than 25% return on their investment (through stock and over invoicing).

But you with the brokerage costs will be lucky to make a 1% return. Now consider the alternatives, letting your investment sit idle in a savings account gets you 7% return, and a FDR gets you almost 15% return. You wanted to be a part of Grameenphone and this is the price you will pay. Telenor is ready to suck the blood out of many 'small investors'.

Further Irregularities: Valuation
Citi Global Markets did the market value for Grameephone and rated it in the neighborhood of $3.5 billion in early 2007. Then Anders Jensen, Grameenphone's CEO, valued it at $3.2 billion. The valuation was done at the right time when Grameephone had a nice market share and VOiP operations to fuel its profits. Now its 2008, when Grameenphone's VOiP operations does not exist. But then Citibank is the underwriting bank that handles the IPO.

Predicted negotiation results:
This is what will happen at the negotiation table with the SEC, which is designed to make the stock look like a complete steal.

Resolution 1: A 900% stock premium. Total price of stock will be 10 taka. An amazing deal considering you had to pay 18 taka earlier. This is reduction is taken in consideration for small investors, as already done with the 18 taka proposal.

Never mind the SEC's history of not allowing any stock premium over 25%. 900% premium sounds like a steal when compared to a 1700% premium.

What predicted negotiation results mean for you?
Relax. For a 25% dividend you are getting a staggering 2.5% return on your investment of 10 taka (when compared to 1.38% with 18 taka stock). You just have to learn to ignore the double digit inflation, returns on other stock and bank savings and FDR rates. Grameenphone IPO is a godsend.

Dividends may exceed 25%
It may, it may not. But regardless of this step, Telenor will still be cashing out. The IPO was designed to look like it was meant for the poor, but instead it is making money off the poor.