NDBIB's ‘cornerstone strategy’ for local IPOs on CSE

NDB Investment Bank (NDBIB) successfully introduced a ‘Cornerstone Investor Strategy’ to the Colombo bourse via the recent Initial Public Offering of RIL Property Ltd (RIL).

NDBIB said in a media release that the IPO was oversubscribed within minutes on the opening day itself amidst healthy participation of value driven institutional investors. The ‘Cornerstone’ strategy is commonly used in advanced regional markets such as Singapore, Hong Kong and Malaysia and the introduction of this strategy in a frontier market like Sri Lanka is a landmark accomplishment.

Its introduction here is in line with NDBIB’s quest for innovation and adds to the many innovative structures and financial products, including that of book building for IPOs, introduced by the company to the capital markets in Sri Lanka.

According to analysts, cornerstone investments is described as when one or more investors agree in advance to subscribe for a certain number of shares in a forthcoming IPO.

The release quoted Darshan Perera, Chief Executive Officer of NDBIB as saying that, “The rationale for the Cornerstone Investor Strategy is to seek initial price validation whilst creating awareness and positive sentiments around an IPO by receiving commitments from prominent institutional investors."

Nilendra Weerasinghe, Vice President and HeadCorporate Advisory, stated “Cornerstone Investors are offered sizeable allocations in return for making commitments before they see the market response for an IPO. We have a mandated IPO pipeline of about US$75 million and will consider using a Cornerstone Strategy for our future issues depending on market conditions."

The RIL IPO of RIL, a leading developer of commer- cial office spaces in Colombo, comprised a Cornerstone Tranche of Rs. 200 million amounting to 20 per cent of the offer size. NDB Capital Holdings Ltd, NDBIB’s parent company, committed as the Cornerstone Investor whilst agreeing for a minimum allocation of Rs. 120 million in the event of an oversubscription. NCAP further agreed to a voluntary lockin period of six months from the date of listing in line with best practices followed in regional markets.