The markets are on a roll. The direction even a few weeks before the budget is fairly buoyant. People are waiting for corrections to expand their holdings at every opportunity. Taking advantage of this environment, private companies are raising capital through the issue of right shares as well as through fresh capital. Nearly 80 companies have raised capital on the main exchanges and SME exchanges, with many more in the pipeline, including Bajaj Housing, Niva Bupa, Ola, and Hyundai Motors. Besides these, there have been several companies, 80 of which have filed documents with SEBI, that have raised funds by way of rights issues, including companies like Grasim, India Bull Finance, and Sobha Developers.
It makes sense for companies to raise funds when they are available rather than wait until they are required. Banks have perforce to raise funds periodically as it is their raw material for growth. The government also needs to take full advantage and try to raise funds from the capital markets. The PSU companies, which are the current fancy of investors, are riding high, and the seemingly insatiable demand of investors can be met through a fresh supply of paper. The defence companies, for one, which have received huge orders, should build new capacities to cater to these demands. Shipyards need to acquire more land, as do companies in the defence equipment sector, which require more machinery and land. PSU companies can raise funds through rights issues or even the issue of fresh capital. The more so, as many of the companies need to meet the lofty export targets set by the defence ministry. Funds need to be raised for both capacity building and meeting the additional working capital requirements. The government has to aspire to allow PSUs to grow organically as well as inorganically to a global size. Meeting the capital requirements in such a market should be the least of its worries. What is required is planning for the next 5, 10, and 15 years. Projects, especially in the power sector, hydro in particular, are of long-term gestation and are capital-heavy in the initial stages.
Besides allowing PSUs to raise capital, which is currently available for the asking, the government itself needs to raise funds to meet its growing capital requirements. Like a commercial establishment, it can look at raising capital through debt funds when interest costs are low and retire some high-cost funds where prepayment does not attract too high a penalty. The demand for funds is perennial for any government that is in the process of accelerating infrastructure development, including building new airports, railways, and roads, and taking on more ambitious mega projects.
While equity is left to the PSUs, the government can also exploit the low-interest rates and excess liquidity in the markets. It can easily raise funds through the issue of tax-free sector bonds. With private companies raising fixed deposits by around 8 per cent, just a tad above what banks are offering, even 5.5 to 6 per cent tax-free bonds will be easily absorbed by the investing fraternity. Mega projects like the Konkan Railway and the Sardar Sarovar Project were also partially funded through such means. NHAI was also one of the big issuers of tax-free bonds for funding its various road projects. The government can easily identify some mega projects, like the inter-linking of river projects, which it has been talking about for decades. The first such project, the Ken-Betwa Project, linking the waters of two tributaries of the Yamuna river, involves a cost of Rs44,500 crore and can be financed with a bond issue of Rs10,000 crore, which can be raised from the public. Participation of HNIs, retail investors, and several cash-rich companies will easily participate in the issue, which can also have a green shoe option. There are many
such projects which will ensure water security for India.
What is important is to ensure that project-specific bond issues, which can easily be ring-fenced to ensure that the funds raised are utilised for the specified project and none other, will be a kicker for investors in the region, as these bonds will also hold sentimental value. Gujarat Narmada Valley Fertilisers Ltd appealed to the farmers and local people to subscribe to the share capital for the prestigious project in their area.
The government can raise funds through the issue of shares for long-gestation projects like airports or railways. Tax-free bonds will be an additional incentive. Given the conducive environment, the government needs to act fast, both to raise capital and to reduce the surplus liquidity in the system. To mop up huge profits from investors, it can also look at issuing capital gains tax-free bonds; that, however, is a topic for discussion at a later date.