Wow, What a
beginning! Indians cannot think of a better start for 2008 than what has been
witnessed during the first fortnight of January: one, Ratan Tata showcased his
engineering marvel, “People’s car” in Delhi, which—though not on display—became the most discussed car
among the US executives at the recent Detroit motor-show; and two, Anil
Ambani’s ‘Power’ful IPO that offered
22.8 crore shares, involving an amount of Rs. 11,700 cr, has made a sort of
history in the financial markets by attracting cumulative bids worth a
mind-boggling Rs. 7,52,000 cr, which is said to be the equivalent of the
aggregate market capitalization of companies listed in Portugal and the Czech
Republic put together, that too, in a market that badly tanked during the week.
Of these two, we shall take a critical look at the success of Reliance IPO, for
financial events are always more glamorous.
The retail
portion of the issue of the Reliance Power that is engaged in developing and
building power plants with a combined installed capacity of 28,200 mw, both
locally and overseas, was oversubscribed by 14 to15 times attracting a record
participation of 50 lakh retail investors. The portion reserved for Qualified
Institutional Buyers (QIBs) was oversubscribed by 70 to 80 times with the
participation of over 500 domestic and international QIBs, involving an amount
of over Rs. 5,00,000 cr.
Intriguingly, PSU banks such as PNB, SBI, BoI and IOB are reported to have put
in bids worth Rs. 1,500-2,000 cr, which is a cool departure from their known
passive disposition towards profit-making. To cap it all, the issue is said to
have garnered Rs. 1,15,000 cr as application money deposited in banks which,
incidentally, almost equals India’s deficit for 2006.
This
overwhelming response has proved a point: the PILs filed against Reliance could
not cut ice with its investor block. Even otherwise, Reliance is, perhaps, more
used to adverse comments from a section of media which enjoys writing about
Reliance almost similar to what Rayner wrote in his recent book, The Associates: Four Capitalists who Created
California to describe the four business moguls of 19th century California:
“cared only about money” and to become “fabulously wealthy” they “bent laws, broken
rivals, and bribed governments.” All that, of course, could not deter the group
from becoming what it is today. Incidentally, this would have led a section of
Dalal Street to strongly advocate that
every aspiring young entrepreneur should learn from Reliance as to how to keep
themselves ever agile—as Machiavelli argued five centuries ago that strategic
success depends on virtu, or
preparedness and readiness, and fortuna,
the ability to recognize opportunities and take advantage of them—to capitalize
on the market opportunities and create world-class assets in record time for
the ultimate good of the investor fraternity.
All this for
sure, may jingle sweet to the ears of the new-age Indians, but there is a flip
side to this hoopla: Reliance Power is expected to take at least another two
years to generate power. And, if the experiences of the state-controlled power
corporates, and electricity boards are of any value, one gets jittery of the
time- and cost-over runs associated with the execution of power plants and the
hassles of drafting power purchase agreements. No wonder, these factors have
weighed heavily on mutual funds that were reportedly not keen on investing in
the IPO. That aside, what is more disturbing to note is: Are Indian business
houses once again becoming conglomerates of diverse businesses? Anil Ambani
today controls businesses as diverse as telecommunications, power generation,
financial services, and so on. And the combined market capitalization of these
companies stood at a whopping Rs. 1,42,300 cr.
According to one
section of economists, it is not the resources—land, labor and capital—of an
economy that defines higher income countries but “the efficiency at which a
society uses its resources to produce goods and services.” In other words, it
is the micro-level dynamism that ultimately makes a country’s economy more
vibrant by fostering all-round innovation. It means, the more widespread is the
entrepreneurship, the better it augurs for the economy. It is the ‘fluidity’
that facilitates the exchange and networking of knowledge across boundaries,
and such sharing of knowledge across many, obviously, challenges the status quo
and thereby lifts the trajectory of an economy’s performance. And for that to
happen, economic resources must spread across.
There is yet
another danger with corporates becoming too big in diverse fields, that too, in
the hands of too few, particularly, in developing economies where institutional
setup is not all that matured: regulators, being over-awed by the mere size of
these corporates, tend to fail in making these giants behave. Even the
so-called matured free markets, such as the US and the EU, took pretty long to
make corporate giants like Microsoft submit to the competition laws. The recent
happenings at Citi—the financial conglomerate that has written off its loss to
the tune of $18 bn—which was once considered “too big to fail”, make one wonder
if it has “become too big to succeed”.
All these
arguments compel even an optimist to pause for a while and wonder if we are
learning anything from the global experiences. Maybe, time alone steers us out
of these traps, but in the meanwhile, let the investors in the IPO enjoy good
returns.
(February, 2008)
0 comments:
Post a Comment