Grameenphone finally goes public

Grameenphone's new IPO is the talk of town. Its a $300 million IPO, the largest ever for Bangladesh. The foreign press still considers the Bangladeshi stock market to be too small to be considered an 'emerging' market. They prefer the term 'frontier' market.

A $300 million IPO is not small for Bangladesh by any means. To put this into perspective, the record holder was Shahjalal Bank who had an IPO of $13 million (for a 50% stake). GP's IPO is for a 10% stake. Citibank is the manager to this issue, but there are some funny things happening.

A $300 million IPO (for 10%) would value Grameenphone company at $3 billion. Citi Global Markets (a division of Citigroup) did the valuation in early 2007 when it valued Grameenphone at $3.5 billion. Then it was reduced to $3.2 billion. Is it not funny that Citibank is the manager to the issue while its sister concern does the inflated valuation?

Why Inflated?
Citi Global Markets has not noticed that the playing field has drastically changed from early 2007 to July 2008. Grameenphone's slide continues as its profits continue to decline at an alarming rate. (GP keeps blaming it on fines, but we all know VOiP took a major chunk out of its profits). GP was conveniently valuated at its peak, which right now, they are far from it. Citi Global Markets does the valuation, Citibank picks up the check. Get the drift?

AKtel has a new Tk 1 plan where it shows they are about to get serious. And Orascom's Banglalink is no exception. Orascom seems to have more infrastructure set up globally to rival Telenor's expertise

Strategy of the IPO
Chances are the valuation will stay inflated. Telenor is really smart about the IPO. If any outsider gets hold of 10% of the share, they may raise objection at board meetings. It is especially dangerous if the billionaire patriarch of Orascom, Naguib Swariris, decides to swoop into that 10%. Don't get me wrong, anyone will want that scenario but Swariris has more to gain from this and he will do anything to fight for a board seat (kind of like Carl Icahn).

Swariris is very canny about his deals, which he executes with lightening pace. Telenor wants to prevent this sort of situation by placing a staggering $150 million (HALF of the IPO) into private placement. Chances are its being placed with people they know won't sell.

Its a big IPO, but not much when you factor these precendents.

Immediate Results
All the stocks as a result of this news rebounded. The ugly duckling of the Dhaka Stock Exchange, Mutual Funds even rebounded because 10% of the public IPO would be spread into their hands.

In the long term will the stock market continue to grow? YES, there is $8 billion worth of remittance being sent to Bangladesh. And stock market (usually blue chip stocks) are the best place for these investments.