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Rights issuances have seen an 85 per cent drop this year due to volatility in the market and uncertain economic environment.
So far this year, 10 listed companies have mobilised Rs 1,913 crore through rights issues compared with Rs 12,568 crore last year.
The amount raised this year is the lowest since 2003, show data compiled by Prime Database.
“In the current scenario, promoters are reluctant to shell out additional money for capital expansion. Given the shape of various sectors, the fresh capital requirement is also limited,” said Gesu Kaushal, executive director, Kotak Investment Banking.
A rights issue is a method of raising capital where a company invites existing shareholders to buy additional shares within a fixed time period.
The number of additional shares a shareholder could buy would be proportional to their existing holdings. Such a rights issue is considered a positive step for a company, as it exhibits the promoter’s confidence.
Investment bankers say a lot of companies have pushed back their expansion plans, which has impacted their fundraising. Some that were looking to raise capital have been forced to postpone their plans after the recent downturn.
“Capital formation of India Inc has witnessed a slowdown, especially on the equity side. Although there is optimism, companies are still waiting for the earnings and macroeconomic indicators to improve before any capital expansion. Further, the majority of them are already running in excess capacity,” said Alok Churiwala, managing director (MD), Churiwala Securities.
Except for initial public offerings, all the streams of fund-raising have witnessed a sharp decline during 2016 as the companies couldn’t time the markets. For instance, the amount raised through qualified institutional placements, too, has dropped by nearly 80 per cent to Rs 4,480 crore during 2016. The fall is sharp, especially in the past one month, as the equity markets witnessed a correction after the central government’s demonetisation move. The benchmark Sensex has lost nearly four per cent since.
Pranav Haldea, MD, Prime Database, says the slump in equity issuances is a worrying sign for the markets, as it indicates corporates are not confident enough about the outlook.
