Earlier today it was revealed brokers have made a combined bid to buy almost $12 billion shares in Medibank Private, even though the government is only expecting to raise between $4.5 and $5 billion from the float.
By any estimation that is a huge surplus of demand over supply and in a usual market interaction that would push the share price sharply higher.
As an IPO however the Medibank Private float is yet to hit the streets so this tension between buying and available stock is not yet evident in the price even though allocations are going to have to be scaled back materially given the huge volume of bids received already.
One way to judge where Medibank might price on the first day of trade is via the grey market that IG Markets is running on Medibank Private shares in the lead up to the float.
Evan Lucas, market strategist at IG Markets, told Business Insider that the grey market “is priced by IG, based on where its clients believe the closing price of the stock will be on November 25. The market enables traders to trade CFDs on Medibank’s stock before it lists, giving them the ability to gauge whether the float is over- or under-priced.”
Lucas said that the “extra” demand evident in the broker bids meant that buyers who had bid for shares would not just see their allocations receive a haircut but rather a “razor shave”. That is they would be heavily scaled back. This means there is likely to be a large overhang of buyers, particularly institutions, seeking to increase their holding in Medibank upon listing.
This, coupled with the news that only $1.5 billion of the $12 billion bids received had been allocated, means that “retail and institutional investors will have to battle it out for the remaining $3.5 billion worth of shares left.”
“The Medibank Private grey market has been heavily bid over the past 10 days and even more so in the past 24 hours,” Lucas said. That bid tone meant that traders have pushed the indicative price in IG’s grey market to “$2.20, which is now 10% above the indicative range and 5% above most analysts’ 12-month estimates.”
Here’s the chart. (Click to enlarge.)