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Hi-Tech IPOs: Small firm, big problems

Investors who bought shares in Ionica at £3.90 ($6.40) during the innovative UK telephone company's public flotation led by SBC Warburg Dillon Read in June, have soon regretted that decision. Just four months later in November, Ionica issued a warning of a slowdown in sales. It announced a first-half loss of £77.2 million. Worryingly, problems of insufficient base station capacity, a delay in implementing a crucial software programme as well as the company's own imposition of new credit controls on customers, had together slowed its drive to sign up new paying subscribers. The news sent the share price tumbling to £1.56.

A partner in one of the leading law firms specializing in securities markets says: "There is no doubt that, in America, if you get a dramatic share price collapse like that, someone gets sued."

In fact, Ionica was always going to make a loss. With its extensive roll-out programme and high capital expenditure, it was not predicted to make profits for up to eight years. But these early problems were not expected. Only one banker at SBC Warburg Dillon Read is allowed to talk about the floatation, and he refused to speak for attribution.

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