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Telkom not only had to contend with a global bear market, but also with international investors' concerns that the current strength in the rand would not hold.
A telecommunications analyst told I-Net Bridge that government had to lower the Telkom listing price in order to ensure foreign investors took up the shares.
Government initially hoped to realise between R33.50 and R40.90 a share for Telkom, but on Monday cut the price range for the Telkom initial public offering (IPO) to between R27 and R30 a share.
Telkom listed at R28.00 on the JSE on Tuesday.
"You can't argue with the price. There was a need to bring international investors in. I don't know if it had to do with forex issues or credibility issues, but government had to take into account that foreign investors were coming in with the rand pretty strong," he said.
He explained that there was a chance that the rand could depreciate after offshore investors bought the stock, which could result in them losing money.
"The price is brilliant from an investor point of view. It is as low as it can get," he said.
He asserted that Tuesday's listing was a successful one for Telkom and that it would be positive for the JSE.
"It brings another sizeable company to the JSE, which from a market cap point of view is brilliant. If foreigners invest it's even better, as one wants to get as much internationalisation of the JSE as possible."
Tuesday's listing price would give Telkom a market capitalisation of R15.6bn. The JSE has a market capitalisation of about R1.5 trillion. At its listing market capitalisation, Telkom would be about the 21st biggest stock on the bourse, just below Sanlam (SLM) and above Liberty Group (LGL) and Lonmin (LON). It would also make it the fifth biggest industrial counter in terms of market capitalisation.
JSE deputy CEO Nicky Newton-King said on Tuesday that provided that Telkom's market capitalisation at the close of trading on Friday this week was at least 1% of the market cap of the FTSE/JSE All Share Index, it would be fast tracked into the FTSE/JSE All Share and Top 40 indices.
A dealer agreed that the listing had been successful, adding that it was good the share had recovered after briefly falling below the listing price.
"I think it is a fantastic debut," he asserted. He noted that Telkom's institutional offer had been oversubscribed, despite unfavourable market conditions.
PLJ Financial Services economist Dawie Roodt said that the decision to cut the listing price was crucial for the listing's success.
"You don't want Telkom to trade below the listing price. A discount has already been given - South African taxpayers have effectively given a discount to the Telkom shareholders," he said.
He asserted that the share would have been under pressure, along with the rest of the JSE which was down sharply on Tuesday, had the listing price not been lowered.
"It was a bit of an unfortunate time to list, but the momentum was such that government couldn't do much except go ahead," he said.
"The listing is not as exciting as it would have been two years ago. If it had happened then, we would have had more foreigners coming in and much more interest. We would have had billions flowing into South Africa. The listing was a bit of a damp squib in the end," Roodt concluded.
While the Telkom IPO raised R3.9bn, in US dollar terms this was less than $500m, of which only half is expected to come from offshore.
The reception that the Telkom listing receives on the New York Stock Exchange remains to be seen.
Dow Jones newswires reported Telkom has been priced at $13.98 an American Depositary Share - below expectations of $15.30 to $18.70. Each American Depositary Share represents four ordinary shares that will trade on the JSE.
And with US markets weaker at the start, under pressure from the possible war in Iraq, bombs in the southern Philippines which killed at least 17 people and concerns about the North Korean incident at the weekend, Tuesday might not have been the most ideal day to debut. - I-Net Bridge
