How to make something out of nothing and sell it to everyone: The Tale of SureShot Power Company
Mr AA Chairman of SureShot Power to Government “I want to setup 5000 Gigiwatts of thermal power plants. Give me the permission and sign a purchase agreement”
Government “But your company is brand new with no money and you have no experience in the power business.”
Mr AA “I will raise the money from banks and employ the best people in the power sector. So give me conditional permission subject to fulfilling financial and technical norms.”
Government “Ok done”
Mr AA to consortium of banks “I need USD 10 Billion to start my new power company.”
Banks “But you have no track record in this business.”
Mr AA “I have a conditional agreement with the government and will hire the best talent in the power sector”
Banks “Ok then we approve funding for your company subject to technical conditions.”
Mr AA to power sector exports “I am setting up the largest thermal power company in India, do you want to work for me.”
Power sector experts “How will you pay us”
Mr AA “I have got approvals from government and funding from banks.”
Power sector experts “Ok then.”
Mr AA to public “I am setting up the largest thermal power company in India, I have got approvals from government, funding from banks and have hired the best people in the power sector. Do you want to invest in my company”
Stock punter to Stock Expert “Will it give sure shot profit”
Stock Expert “The company has all the government approvals, funding from banks and is run by top prepossessions of the power sector. So yes it is a sure shot bet.”
(Disclaimer – Stock market investments has subject to market risk)
Stock punter to his techie friend “This hot IPO of SureShot Power Company is coming, you must invest.”
Techie friend “I don’t know man, stock investments are very risky.”
Stock punter “Oh no this company is totally safe, its has pedigree of Mr AA, has agreements with the government, funding by the top banks and is run by top professional in the power sector. It really is a sure shot bet. All my other friends are investing in it as well. They cant all be wrong. Trust me you don’t want to be left out on this one.”
Techie friend “Ok, I guess they cant all be wrong, I mean if everyone is doing it then it must be safe and I really don’t what to be left out especially when everyone else is making money. Yeah i’ll go for the IPO of SureShot Power Company.
So the techie friend and millions of other like him pile into the IPO of SureShot Power.
The IPO is oversubscribed several time
As some of you may have guessed, SureShot Power is actually Reliance Power. The IPO had huge hype surrounding it, was very heavily subscribed and it bombed on debut. Now almost a decade later it still trades at nearly 1/10th of its IPO price.