Given that an international equity offering can cost a company as much as $250,000, flowback is more than just a disappointment. As Charles Ryder of Barclays de Zoete Wedd put it, "Flowback defeats the object of the exercise.
Flowbackoccurs when shares placed outside a company's home market return, as foreign investors sell the stock. The repatriation of large amounts of shares, especially if it takes place soon after the issue, can exert downward pressure on the company s stock price, undermine its international reputation and frustrate its attempts to broaden its shareholder base. If it is not countered by rising home demand, the companys price/earnings ratio is sure to suffer.
Most bankers agree that flowback is the main problem that issuers face ill the international equity market, but opinions differ ovcr thc best way to prevent or minimise it. Moreover, it is by no means a uniform or constant phenotilenon.
The big three banks in Switzerland, for example, have been fairly successful in containing the problem, possibly due to their large retall investor base and the huge pools of in-house funds under their control. Retall buyers are considered more stable investors, turning over their portfolios less frequently than performance-orientated fund managers.