The Federal government has raised the offer price for institutional investors to between $2.00 and $2.30, thanks to massive demand.
In a statement released today, Finance Minister Mathias Cormann said,
"Very strong demand from domestic and offshore institutional investors has led the government to increase the indicative price range for the Medibank Private Share Offer. The indicative price range was initially set at $1.55 to $2.00 per share…this has now been revised upwards to $2.00 to $2.30 per share."
Retail investors aren't affected, as the government has guaranteed that the existing price cap means they will pay a maximum of $2.00 per share, even if the institutional offer price is set above that level.
There are reports some fund managers have bid as much as $2.25 per share, in fear of missing out. Institutions have until noon tomorrow to submit bids, and reports suggest more than 300 investors have already placed bids, split around 50/50 between domestic and international.
This follows retail investors bidding for $4.8 billion worth of stock, while the broker offer saw subscriptions of $12 billion submitted, only to be scaled back to $1.5 billion. And the government has reserved the right to claw back a further 20%, or $300 million of that.
Given the overwhelming demand, the IPO is shaping up as bonanza for retail investors and the federal government. Even once shares begin trading next week, it's likely that many investors, both institutional and retail who missed out in the IPO, could wade into the market and pick up shares.
It seems the massive success of previous government-owned businesses listed on the stock market, such as Telstra Corporation Ltd (ASX: TLS), Commonwealth Bank of Australia (ASX: CBA) and even Aurizon Holdings Limited (ASX: AZJ) – previously QR National, means investors want to get in on the ground floor, no matter what.
Many investors may well be hoping for a 'stag' profit such as IPH Ltd (ASX: IPH) has seen today. Shares in the intellectual property specialist were offered to investors at $2.10 per share, but are currently trading around $3.00 – a rise of 43%.
But Foolish investors will know that performance over the long term matters more, and on a P/E ratio of more than 21x (at $2.00 a share), Medibank appears expensive and will have plenty to do to justify that price.
