Brazilian oil and gas company Petrobras has raised $70 billion (Rs 3.2 trillion) in what is the largest share issue in history. The earlier record was held by Agricultural Bank of China, which raised $22 billion in a July initial public offering (IPO).
Interestingly, both firms are controlled by governments. These bumper share sales by state-run firms come at a time when Western corporations are sitting on billions of cash reserves, too timid to spend them on building new factories. Coal India is expected to come up with India’s largest IPO, hawking one-tenth of its equity for an estimated $3.5 billion.
The sheer size of share sales by state-run firms creates its own demand, since mega issuers will inevitably land in major equity indices. The world today is full of passive index investors, who then have no choice but to unthinkingly buy index stocks. But trouble could soon brew in this investment wonderland.