Rackspace, India And A Diseased IPO Market

Posted by Steve Spalding in Featured | View comments

Herbert Tabin of the Social Commerce site VOIS talks about the state of IPOs here and in foreign markets.

To put it lightly the United States IPO market “has fallen and can’t get up”. With tight credit an issue, a housing nightmare that still can’t find a bottom and investment banks looking to their own survival, most IPO’s are being sidelined, making it possible for only the best and brightest of 2008 to have the privilege of going public. Despite having the top Wall Street bookmakers in the world working together on relatively small offerings, amazingly, the last 7 out of 8 IPOs to go public in USA opened lower — some much lower.





IPO Market

This week was no different for internet hosting darling RackSpace Managed Hosting, Stock Symbol RAX. This was the second time RackSpace attempted to go public, the first was in 2000 but that IPO was put off by the tech wreck. RackSpace not only survived the tech wreck but flourished during the last eight years and has since become the world’s largest internet hosting company. RackSpace was thought by many, including Marketwatch, as potentially being “the one” to turn the IPO market around. Apparently it wasn’t. The RackSpace IPO priced at $12 a share proceeded to drop into the $9 range before closing at roughly $10 per share.

While, in my own opinion, RackSpace remains a spectacular buy (for full disclosure RackSpace hosts my Social Sourcing, Social Commerce company VOIS and I became shareholder on Friday buying at $10 a share) just demonstrates the difficulties in the US market even with some of the fastest growing and exciting companies, but what is not being spoken about is the fact that this sickness has now moved on to the Indian IPO market.

At the beginning of 2008 it looked like it was going to be another record year for Indian IPO’s. The Bombay Exchange had been on a roll with double digit gains, but with a slowing US economy and looming credit crisis the Bombay Stock Exchange, 30-share sensitive index plunged more than 25% this year as panicked foreigners began selling billions of dollars of shares.

The sell-off had many different affects on the Indian market but most noticeably it has now infected the Indian IPO market causing more than 19 planned IPO issues to be postponed. The carnage deepened this week as the latest casualty became the Bombay Stock Exchange’s chief executive Raj Patel who resigned for “personal reasons”. Despite the clear negativity and uncertainty, the Indian Government still plans to list the country’s largest phone company Bharat Sanchar Nigam Ltd (stock symbol BSNL).

The company with its 70 million subscribers most of them using landlines will still be an important issue as it would be the largest Indian IPO ever at $10 billion. If the government can pull off a successful IPO it could open the way for a long line of other state run companies to go public, if the IPO is a failure it could cause a major blow to an already fragile Indian market.

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