Exponential IPO fails

Published: Wednesday | December 11, 2013 Comments 0
Justin Nam, managing director of Exponential Holdings Limited. - File
Justin Nam, managing director of Exponential Holdings Limited. - File

Avia Collinder, Business Reporter

Start-up investment firm, Exponential Holdings Limited, headed by Justin Nam, closed its initial public offering on Monday, reporting that it was undersubscribed.

The IPO, priced at $2 per share, failed to meet its minimum threshold of $300 million as stipulated in its prospectus.

It's the only junior IPO to have failed in the four-year history of the Junior Market, which now has 18 ordinary listings with one ordinary listing as well as one preference listing pending.

Exponential will be refunding all monies tendered for its shares during the offer that was launched November 25. Refunds will be issued by Friday, December 13.

Nam and lead broker for the offer, Mayberry Investments Limited, said in a release that that they were looking forward to seeing a company with "this innovative structure" trading on the Junior Market in the future, and expressed gratitude to participating investors.

Mayberry CEO Gary Peart declined to state the actual IPO subscription numbers.

"I personally think it's a product which is probably ahead of its time. Especially in a year in which there was 14 per cent devaluation of the dollar, we thought a product which was 70 per cent invested in the US dollar would do well," Peart told Wednesday Business.

"However, it is our mantra at Mayberry that we don't fight the market. The market has spoken, and it is not ready," he said.

The failure of Exponential's offer comes amid reports of the rocky performance of the only other start-up to successfully list on the JSE junior exchange - C2W Music Limited, which is low on cash and has earned limited revenue since its debut a year and a half ago.

Exponential was incorporated in Jamaica in June 2012 initially as Justin Nam & Associates. The investment firm aimed to raise as much as $480 million from equity investors, which it planned to invest in equities and fixed income securities.

Nam said ahead of the offering that his company was not in the business of managing portfolios for investors but would seek out and make its own investments

"We will not have any clients; only shareholders. This way, we are giving shareholders a chance to benefit from an efficiently managed portfolio," he said in November.

Close-ended hedge fund

Exponential Holdings' business model is described as that of a close-ended hedge fund with a 2-20 management and performance fee structure, that is, the company's management would have been paid an annual fee of two per cent of net asset value, plus 20 per cent of the gains over the company's base return or hurdle rate.

Nam worked with various investment houses for a decade before launching into business - propelled, he said, out of frustration at losing out too many times on what he considered lucrative investment opportunities because of slow decision-making by clients whose authorisation he required to execute transactions.

It's unclear what other financing options Nam plans to pursue for his start-up. He did not return calls for comment on Tuesday.

Peart said during the roadshows to promote the offer, Exponential had received feedback which, he suggested, was worthy of Nam's consideration. He did not go into details.

"Justin is a fighter. Knowing him, he will go and come back again with a different structure, by which time the market could be more receptive as well," the Mayberry CEO said.

JSE General Manager Marlene Street Forrest confirmed that "of 19 securities brought to market on the junior stock exchange, this was the first one to have failed". She was out of office and unable to comment on the size of the take-up at closure of the IPO.

It's unclear whether the Jamaica Stock Exchange has had any other failures in its 44-year history, but Street Forrest said she could confirm that Exponential was the first since year 2000.


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