About Padma Bridge being converted into a company
Thursday, 21 August 2008
I refer to your lead news of 20 September 2008 stating that Padma Bridge project is to be converted into a company. Your news further states that our stock exchange needs more equity shares. True we need more equity shares of good companies. But we should not forget that without debt instruments, our market remains one-legged. A healthy capital market also needs tradable bonds in order to contain risk. A balanced approach is what we really need.
I feel that this desire of the Ministry of Communications to convert the project into a public company is perhaps not a wise one. Firstly, an equity share in a company represents ownership and as such the ownership of a public and welfare enterprise in the hands of private parties may lead to a conflict of interest. Secondly, the nature of the project is such that its payback is through a steam of rental income over the life of the project. The public expectations would be thus contrary as there would be a limited opportunity for growth which is possible only in business ventures. Paying rental income as dividends has its limitations. Thirdly there are tax implications which would neither favour the company nor the investors. Finally, we have many instances all over the world of the government choosing the path of a bond issue for funding public works e.g. the entire railways system in India, IGRSN Company in Bengal, the Suez cannel etc.
The Ministry of Communication may consider setting up a gilt edged bond or a bond patterned in the form of a municipal bond. This Padma Bridge Bond could be floated as an IPO and listed in the stock exchanges and thereby traded in the secondary market. By doing this, the government will be in a position to have the cake and eat it to.
Many of our saving sources e.g. life insurance, provident funds etc., are looking desperately for safe investments and such a bond would surely guarantee the opportunity. Moreover, there is very little work involved in the issue of bonds by the government. There are no stamp duties and charges. All it needs is an act passed by the government, stipulating all the conditions and management of the bond. Such a bond would be a boon to investors who would like a safe haven and a guaranteed return on their investments.
Imtiyaz Husain
I feel that this desire of the Ministry of Communications to convert the project into a public company is perhaps not a wise one. Firstly, an equity share in a company represents ownership and as such the ownership of a public and welfare enterprise in the hands of private parties may lead to a conflict of interest. Secondly, the nature of the project is such that its payback is through a steam of rental income over the life of the project. The public expectations would be thus contrary as there would be a limited opportunity for growth which is possible only in business ventures. Paying rental income as dividends has its limitations. Thirdly there are tax implications which would neither favour the company nor the investors. Finally, we have many instances all over the world of the government choosing the path of a bond issue for funding public works e.g. the entire railways system in India, IGRSN Company in Bengal, the Suez cannel etc.
The Ministry of Communication may consider setting up a gilt edged bond or a bond patterned in the form of a municipal bond. This Padma Bridge Bond could be floated as an IPO and listed in the stock exchanges and thereby traded in the secondary market. By doing this, the government will be in a position to have the cake and eat it to.
Many of our saving sources e.g. life insurance, provident funds etc., are looking desperately for safe investments and such a bond would surely guarantee the opportunity. Moreover, there is very little work involved in the issue of bonds by the government. There are no stamp duties and charges. All it needs is an act passed by the government, stipulating all the conditions and management of the bond. Such a bond would be a boon to investors who would like a safe haven and a guaranteed return on their investments.
Imtiyaz Husain