Not so ‘mega’ IPOs

Irving Fisher’s famous exposition of “money illusion” — the tendency of people to consider nominal numbers rather than the inflation-adjusted, real numbers — is a century old. However, many people, including some economic/financial writers, still seem to be in love with nominal numbers for inter-temporal comparisons. Reporting/writing on financial and corporate matters involving nominal numbers should be top candidates for using real numbers since real values dictate several important discourses and decisions.

Ironically, many a times nominal numbers take precedence over the real numbers, masking the reality to some extent. Take the example of two significant upcoming IPOs: that of the National Stock Exchange (NSE) and Jio Platforms. The size of these issues are reported to be to the tune of Rs 30,000 crore and Rs 40,000 crore respectively. Hence, most of the reports, both in the print and visual media, call these issues the largest-ever and mega IPOs. It happened in the past too, whenever an IPO of a significant size came out, as in the case of Hyundai Motors, LIC, Paytm, Coal India, Reliance Power, and many more.

Each IPO is significant in many ways. It is the prerogative of the board of each company to decide on it, subject to the rules and regulations. However, a real value test as well as juxtaposing growth in incomes, investment opportunities, investor population, etc. on those nominal amounts is necessary to really decide which are the mega and the largest IPOs over time.

Reliance Petroleum came out with a public issue of Rs 8,100 crore in 2006. The current value of this amount is about Rs 29,000 crore. The 2008 Reliance Power IPO was for Rs 11,563 crore. In current prices, this would amount to about Rs 35,500 crore. The IPO by the Coal India in 2010 was to the tune of Rs 15,199 crore. This is about Rs 40,000 crore today. The LIC IPO in 2022, of Rs 21,008 crore, is now about Rs 25,000 crore. The IPO by Hyundai Motors India in 2024, at Rs 27,870 crore, is about Rs 30,000 crore in current prices. While Hyundai’s is the largest-ever IPO in nominal terms till today, in real terms it is clearly much below that of Coal India and Reliance Power.

In terms of the US dollar, the Coal India IPO was equal to $3.33 billion at the exchange rate of the time. And the Reliance Power IPO was of $2.7 billion. Thus, in real terms, Coal India followed by Reliance Power are the top two IPOs in India in the last two decades both in INR and USD terms. That is the power of real balancing, a term popularised by economist Don Patinkin to emphasise the need for using inflation-adjusted numbers rather than being under money illusion.

Globally, the largest-ever IPO is the recent issue of $75 billion by SpaceX. That too was oversubscribed 3.5 times, showing investor interest of about $250 billion. In nominal terms, the next big issues are: Aramco in 2019 for $25.6 billion (29.8 billion including the green shoe option); $21.3 billion by Softbank in 2018; and $21.8 billion by Alibaba in 2014. However, the $17.1-billion IPO by NTT in 1998, which is worth $35 billion in current prices, is second to the SpaceX IPO in real terms.

India today is different from the India in the first decade of this century. In 2008, India’s GDP was only Rs 43 trillion; today it is about Rs 350 trillion, though the base-year change twice makes real value calculations challenging. To partly offset it, the GDP increased from $1.1 trillion to $4.15 trillion from 2008 to 2026. Retail investor population has increased from about 20 million to 200 million during this period. Intuitional investment has also grown by more than ten times. Moreover, 2009-10 was the period of the global financial crisis. In such a situation, the fact that Coal India could come up with an IPO equivalent to $3.3 billion then was remarkable — that too with an OFS of 10% of its total equity, without seeking any regulatory relaxation on the public holding rules. This was in yesterday’s India. Today’s India should be able to access the market at much larger scales. The GDP of Saudi Arabia was only $1.47 trillion in 2019 when Aramco went public with an IPO of about $30 billion, including the green shoe option. The Japanese GDP was $4.15 trillion (equal to India’s current GDP) in 1998 when NTT issued the $17.1-billion IPO.

Liquidity for the Indian IPO market is clearly evident from the magnitude of oversubscription in some of the large public issues. The Reliance Power issue was oversubscribed 73 times in 2008. Coal India’s IPO was oversubscribed 15 times. There have been several instances of mid-size and large IPOs getting oversubscribed more than fifty times.

Therefore, given the increased incomes, expanded investor participation, bigger size of the economy, and resulting investment opportunities the question is why Coal India’s 2010 IPO still shines as the largest-ever issue. What is holding back the big companies from mobilising “mega” sums through public issues? Why should big, healthy companies take shelter under the very liberal and granular public holding rules? Is it a lack of sufficient investment options or the absence of big, ambitious plans? Or is it a scheme for keeping the brute majority of the promoters intact?

The board of directors of such companies are the best equipped to answer these questions. Whatever the reason/s, the tendency of big companies going for medium-sized IPOs in real terms and small-sized by global standards, that too amidst robust economic opportunities, reveals a constrained mindset that is misaligned with the changing domestic and global dynamics. That stance is neither in tune with the growing strength of the Indian economy nor does it help India achieve its ambitions.

The author is a former Member, Securities Appellate Tribunal, and former Director, National Institute of Securities Markets