 "Domestic i-banks gain edge in IPOs")
Rights issuances have seen a sharp 85 per cent drop this year due to volatility in the market and uncertain economic environment. So far this year only 10 listed companies have mobilised Rs 1,913 crore through rights issues compared to Rs 12,568 crore last year. Amount raised this year is lowest since 2003, data complied by Prime Database shows.
"In the current scenario, I think 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.
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. During the exercise, all shareholders buy additional shares in accordance of their holdings and typically don't result in shareholding of existing investors. Rights issue is considered a positive step for a company as it exhibits promoter's confidence in the company.
Investment bankers say a lot companies have pushed back their expansion plans this year, which has impacted their fund raising plans. Some companies that were looking to raise capital have been forced to postpone their plans following the recent downturn in the market.
"This goes on to show capital formation of India Inc. has witnessed a slowdown especially on the equity side. Although there is an optimism prevailing, corporates are still waiting for the earnings and macro-economic indicators to improve before going for any capital expansion. Further, majority of them are already running in excess capacity," said Alok Churiwala, managing director, Churiwala Securities.
Except initial public offerings (IPOs), all the streams of fund raising have witnessed a sharp decline during 2016 as the companies couldn't time the markets. For instance, amount raised through qualified institutional placements (QIPs) too has dropped by nearly 80 per cent to Rs 4,480 crore during 2016. The fall is sharp especially in the last one month as the equity markets witnessed a correction post central government's demonitisation move. The benchmark Sensex has lost nearly four per cent since.
Pranav Haldea, managing director, Prime Database says the slump in equity issuances is a a worrying sign for markets as it indicates corporates are not confident enough about the outlook.
