OceanaGold falls 6% in first day of trading

OceanaGold PH [OGP 12.50, down 6.2%; 100% avgVol] [link] dropped a little over 6% in its first day of trading, falling P0.82 from its P13.33/share IPO price to close at P12.50/share. The highest the stock traded was P13.34 in the first 20 minutes of trading before consistent selling pressure pushed OGP price to an intra-day low of P12.46 around 1:30 PM. The stock mounted a significant recovery to around P12.90/share before a massive amount of late-day selling pushed it back down to the P12.50 level at the close.

MB bottom-line: Since this is the first IPO of the year, the questions in my inbox tell me that we need to quickly cover a few points about stabilization funds before we move forward. Yes, OGP does have a stabilization fund, but it’s important to remember that a stabilization fund isn’t supposed to entirely prevent a stock’s price from falling. A stab fund is best thought of as a discretionary pool of money that a paid agent (in this case, BDO Capital) can use to buy shares on the open market to provide some artificial demand for the stock. It has a limited amount of money (usually around 10% of the value of the total IPO) and a limited amount of time (30 days), and once either of those is gone, so is the fund. The other thing to remember about stab funds is that it’s entirely up to the agent to deploy the limited resources of the fund. They might be hands-off for days before suddenly smashing the market with a swarm of buy orders to soak up the selling pressure, or they might constantly drip artificial buy orders into the market. Or they might employ a chaotic mixture of those strategies. Stability funds are a little bit of short-term downside protection and a handy pool of exit liquidity, but they shouldn’t be seen as IPO Investing insurance or a protection against loss! Be careful out there!

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