Irrational Exuberance -II ?

I find Alan Greenspan has already used up the expression “irrational exuberance” to signify the dot com boom of 2000. Then I read this story on Reliance Power IPO in the BS story today. Excerpts -

"….there are several aspects of the issue that leave many observers feeling distinctly uneasy. Here is a company that has no assets on the ground, and no history of project execution, getting a value on the market that is many times higher than established and successful companies in the same field of business, namely power generation. The many risks associated with investing in such a company have been listed in the issue documents, including the uncertainties surrounding some of its projects — like the lack of assured fuel supply. But investors (including institutional investors who are professionals and who therefore should know what they are doing) have not been deterred…”

And you thought institutional investors and professionals got brass balls...? Come on, get a life pal....! They represent a bunch from where even sheep learnt to herd up. Just this one difference. The poor animals have a better reason in that they feel secure when bunched together. These guys do it so that when their calls go horribly wrong, on a peer to peer comparison all will look alike, deep in shit. No one guy will look or smell better than the other.

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Over to Mr.Greenspan. "Now Alan, what would you choose to call this frenzy in this part of the world… IE-II…?"

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Private life insurers - another scam in the making?

The private life insurance industry has sought an additional four-year grace period to carry forward its losses since most insurers have failed to break even, even after eight years of operations. At present, losses can be carried forward only up to eight years. The industry has also sought a separate limit u/s.80-C of IT Act for long-term savings.

But I chuckle and split my gut over something else. They face a problem which LIC never had. Current provisions mandate that insurance companies must list within 10 years of operations. Under Section 6AA of the Insurance Act, 1938, Indian promoters have to scale down their stake to 26% within 10 years of operations. This amendment is being considered by the group of ministers (GoM) set up to examine the comprehensive insurance legislation.

It's catch 22. Insurance companies, which are into their eighth year of operations, might not be ready to go public yet, since they are yet to break even. SEBI mandates a company may list only after three years of registering profits. Insurance companies, however, are already being valued at skyrocketing levels. For instance, ICICI Financial Services — the proposed holding company — has been valued at more than $10 billion post-issue. But its earnings are still negative. How did they get such a lucrative valuation? Who valued them? No answers.

That’s the catch. They've taken the extension of time beyond eight years for granted. Their hand picked I-Bankers have arrived at a valuation based on fees they got. But they can't justify that valuation now since they continue to make losses. If they go public now, they may have to pay the investors to buy their shares. It’s going to be eight years now and they are yet to break the stranglehold that LIC has over its customers and turn cash flow positive. Meanwhile these guys spend millions on advertisements to spread insurance awareness. But clearly, it's LIC that's getting the mileage.

Going by the trend, they will not make a profit in another 10 years or so. So their strategy is, keep running to the government for extension of time. The question is, how long should the government forego its tax revenues to subsidise private insurers’ poor performance…? What public good do they stand for? Should the government wimp out just to enrich Indian promoters when they off-load their stakes? How else do you define a scam?

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Mr.Chidambaram, don't you see the bullshit meter turning red...?

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