The Hindu Business Line : The pull of Brand Ambani

Rarely has the equity market been gripped by as much excitement and frenzy over a company’s initial public offering as was witnessed in the case of issue of shares by Reliance Power with the number of retail applications estimated at around 50 lakh. Neither the size of the issue nor, indeed, the stiff premium at which the shares were offered to the public dampened in any way the enthusiasm of retail investors, who emphatically declared their faith in the prospects of the company, as evident in the extent of over-subscription. Clearly, Brand Ambani continues to hold sway over the market ever since a small synthetic yarn manufacturing company went public in the late 1970s. So strong is its pull that investors are not too concerned about the fact that the project is likely to generate significant cash-flows only a good four or five years down the road.

It is a measure of the maturity of the capital market and growing stature of the economy as a whole that funds of such magnitude can be mobilised from the vast army of domestic and overseas investors. If the economy keeps growing at the predicted 8.5-9 per cent over the medium term, inadequacies in infrastructure are going to be felt more acutely. Since the Government has been seemingly unable to rise to the challenge, there is going to be a clamour for greater private sector involvement in these projects. Mobilising large sums of money for funding such projects would have been a challenge for all but a few large industry houses. The performance of Reliance Power can thus be seen as a vindication of the proposition that there is no dearth of public funds for bankable projects.

Raising funds is, however, the easy part. The entry of the private sector into large infrastructure projects is a relatively new phenomenon. These projects present enormous challenges in execution, with cost and time over-runs being an endemic feature of their eventual completion. Concerns about environmental impact, land acquisition, resettlement and rehabilitation are some of the routine hurdles such projects have to overcome if they are to be completed in time. In the past, when such projects were the exclusive preserve of the public sector, delays for whatever reason would result in nothing more than laments by the Planning Commission in its periodic status reports. But the private sector has no such luxury. The stock market’s reaction to missed deadlines in project execution is often swift and brutal. Private enterprises entering the relatively virgin field of infrastructure and core sector projects would do well to remember that.

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