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Fund mobilisation by companies through rights issues in the first four months of 2015 has already gone beyond the amount from this route in each of the past six full calendar years. Six companies have got a total of Rs 11,434 crore through rights issues this year, including the recent Rs 7,500-crore Tata Motors offering.
Investment bankers say a lot of other companies have aggressive capital raising plans, to cash on the improved market sentiment and valuations. Experts say equity capital raising this year, through all forms, is expected to be one of the highest ever.
A large portion of this would be through rights issues, they said. In this, a company raises capital by offering new shares to existing shareholders, typically at a discount to the market rate. Improvement in the equity market, up 22 per cent in a year, has made the environment conducive for capital raising. If the secondary market continues to do well, equity fund raising through rights issues could top the amount raised in 2008, when 26 companies had raised a cumulative Rs 29,797 crore.
Experts believe many state-owned banks, looking to infuse funds into their system, could prefer this way. “It is one of the most popular routes this year and investors have also responded well. We expect to see many more companies choosing it this year,” said P K Sethi, executive vice-president and head of investment banking at IDBI Capital.
Data from Prime Database showed March was the busiest, with three rights issues – of GMR Infra, State Bank of Travancore and Zee Media - hitting the equity markets. The others were of Future Retail, CanFin Homes and Tata Motors. As mentioned earlier, the Tata issue was the largest, at Rs 7,500 crore.
Investment bankers say a lot of other companies have aggressive capital raising plans, to cash on the improved market sentiment and valuations. Experts say equity capital raising this year, through all forms, is expected to be one of the highest ever.
A large portion of this would be through rights issues, they said. In this, a company raises capital by offering new shares to existing shareholders, typically at a discount to the market rate. Improvement in the equity market, up 22 per cent in a year, has made the environment conducive for capital raising. If the secondary market continues to do well, equity fund raising through rights issues could top the amount raised in 2008, when 26 companies had raised a cumulative Rs 29,797 crore.
Experts believe many state-owned banks, looking to infuse funds into their system, could prefer this way. “It is one of the most popular routes this year and investors have also responded well. We expect to see many more companies choosing it this year,” said P K Sethi, executive vice-president and head of investment banking at IDBI Capital.
Data from Prime Database showed March was the busiest, with three rights issues – of GMR Infra, State Bank of Travancore and Zee Media - hitting the equity markets. The others were of Future Retail, CanFin Homes and Tata Motors. As mentioned earlier, the Tata issue was the largest, at Rs 7,500 crore.
Three more companies have board approvals to launch these. “Fund raising is inevitable in a rising market. In a rights issue, the promoters also get to participate in the fund raising without having to dilute their holding in the company,” said Jagannadham Thunuguntla, head of fundamental research, Karvy Stock Broking.
Unlike a rights issue, most other forms of fund raising —like qualified institutional placement, preferential allotment, follow-on public offers or institutional private placement — lead to dilution of promoter shareholding. Besides, in a rights issue, the discount rate at which the shares have to be tendered is not defined, allowing promoters more freedom to fix it. “The pricing is key for any issue. You need to leave something on the table for investors while deciding. Issues where pricing does not make sense will be rejected by investors,” said Sethi.
Further, market participants believe the improving macro economic scenario will prompt more companies to hit the equity capital markets, for more investment avenues. Over-leveraged companies, with inefficient balance sheets, would look at such issuances to rectify their capital structure, analysts said.
“It is quite likely that many more companies may look at the rights issue route because of the advantage of retaining the promoter shareholding. Also, the expectation is that the economy will do well and so, companies will need more money for investments,” said Kunj B Bansal, executive director and head of equity investments at Centrum Wealth Management.
