Assorted Links

  1. The Indian Markets are in correction mode, says Akash Prakash in Business Standard.
  2. Record breaking Initial Public Offers this June 
  3. There is an interesting edit in Business Standard which advocates Equity financing for infrastructure. The summary is:

Like private equity helped in developing telecom sector (Warburg Pincus picked Bharti Telecom, The Commonwealth Development Corporation, then a fund backed by the UK government, invested in BPL), the same could be repeated for other infrastructure sectors as well.I don’t really quite agree with the approach though. For private equity to come successfully in other infrastructure sectors, what is needed is that investor should be able to get some return on capital which they did in the case of telecom, as the article rightly points out.What it misses is the classic distinction between various kinds of goods. The goods are classified on 2 basic principles:

  • Excludable vs Non-Excludable: A good/service is excludable if you can price it and as a result only who can pay will get the good.  Unlike a non-excludable good where pricing is difficult for instance how do u make someone pay for street lighting.
  • Rivalry vs Non-Rivalry: A good service has rivalry characteristic if consuming a unit of the good means nobody else can consume it.

And on this basis we have 4 kinds of goods.

The challenge is to move goods to the excludable category i.e. they can be priced. Once that can happen it interests people to produce/finance the good.

As pricing was possible with telecom, it got private equity. How does one price roads, ports etc. The answer is using tolls for roads, some pricing arrangement for port-users but then this takes time. Unlike telecom, the other infrastructure projects take a lot of time to become fully operational. Hence you need some kind of incentive for the investor to invest in these projects and that is where long-term debt come in. It gives him some revenue inflow at-least.

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