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Demand in the initial public offering of Solbar Industries has reached NIS 1.6 trillion (1,600 billion), while the offering was for only NIS 110 million worth of securities.

The demand for Solbar securities was more than three times Israel's GDP - NIS 495 billion, a record figure for an Israeli IPO.

The oversubscription (buyers wanted more than there was to buy) means that investors will only gets a pro-rated portion of the offered stock. The greater the oversubscription, the smaller the fraction received; in this case, each investor only got 0.005 percent of his order. The institutional investors that bid for stock last week will also only be getting a small portion of what they ordered.

The tremendous demand in Solbar's IPO and the Maabarot IPO - which also took place last week and was also oversubscribed - had little to do with what the two companies actually do, and more to do with the way the offerings were run. Since demand at the institutional phase had been large enough for the companies to settle for minimum interest on their bonds, the auction was ultimately not about price, but about amount. This could not have happened before 2003, because there were regulations prohibiting underwriters to stipulate a maximum price, so that investors used to bid for the price and only placed orders for relatively small amounts, which they in fact meant to buy. Since these regulations were not renewed in 2003 and the new underwriting law has not yet been passed, maximum prices can be set. Under these circumstances, the competition is not based on the price but on the quantity of stocks ordered.

Investors therefore placed highly inflated orders, knowing that they would receive only a fraction of them.

Solbar, owned by Kibbutz Hatzor, produces soy protein concentrate, textured soy products for industrial meat applications, vegetarian meat analogs and animal feed. The company exhibited impressive growth in the last decade, and in 2003 posted sales of $100 million.

The banks said this weekend that they do not charge interest for the credit extended to bidders. They do, however, charge a fixed commission, which means that their returns on this IPO were not exceptional.