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Journalism of Courage
At first glance, the primary market seems to be alive and kicking, if the figures for private placements are taken into account. Issues by way of private placements have trebled over the last two years. According to data supplied by the CMIE, while public issues during the period April 1997 to March 1998 amounted to a mere Rs 6,765 crore, the amount collected through privately placed issues amounted to Rs 21,652 crore. Fully 71 per cent of domestic capital issues in 1997-98 were privately placed. At the same time, public offers through prospectus plummetted from Rs 25,753 crore in 1994-95 to a mere Rs 6,765 crore in 1997-98. One important reason often advanced for the popularity of private placements is that these are not subject to the strict guidelines which SEBI imposes on issues through prospectus. This was one reason for the mushrooming of private placements, especially before SEBI came up with the rule that any issue having more than 100 investors would be a public issue.
But a disaggregation of thefigures shows that debt issues accounted for the bulk of primary market in 1997-98 — while the total for debt was Rs 22,472 crore, that for equity was Rs 7,947 crore, and the bulk of this was accounted for by units. Among the debt issues, PSU bonds took the lion’s share, amounting to Rs 17,056 crore. Much of this was merely bank subscription to the bonds floated by the financial institutions. Another chunk comprised of debt issues by public sector undertakings such as SEBs, which carry government guarantees. So what the data for private placements reflect is not that it is the preferred route or that costs are low, but merely that banks flush with surplus funds have been lending to FIs or to the rest of the public sector backed by government guarantees. Not, by any means, a healthy state of affairs.
