MosChip expects investors to warm up to its rights issue

MosChip Semiconductor Technology Limited, a fabless semiconductor designing company, expects prospective investors to warm up to its rights issue closer to when the issue closes.

The company plans to raise Rs 11.7 crore from the issue which opened on May 24 and closes on June 22. The company is also in the process of shifting the operations of the Noida unit to Hyderabad to have better management control.

Speaking to Business Standard, Vivek Bhargava, chief financial officer of MosChip Semiconductor Technology Limited, said: "It is too early for investors to put in their money. We expect the investors to invest only towards the latter half of the issue."

Bhargava said that the amount from the issue would be used to meet the capital expenditure and working capital requirements of the company including loans and advances to subsidiaries.

The company has also indicated that the proceeds from the rights issue would be used to repay the short-term loan of Rs 4 crore that it had raised from IndusInd Bank Ltd, at an interest rate of eight per cent per annum. Significantly, the company does not have any working capital limits from banks or financial institutions.

As per the offer document for the rights issue, the company made a net loss of Rs 8.53 crore for the nine months ended December 31, 2003 on total income of Rs 9.46 crore. For the financial year 2002-03, the company had reported a net loss of Rs 8.71 crore on a turnover of Rs 10.03 crore.

MosChip is offering 33,43,587 equity shares to shareholders in the ratio of six equity shares for every 55 equity shares held at a premium of Rs 25 per share. The lead managers of the issue are Karvy Investor Services Limited.

In its offer document the company had pointed out that it was dependent on a full-subscription to the rights issue in order to meet its financial requirements.

"Some members of the promoter group, intend to subscribe to additional shares beyond their entitlement if the issue is under subscribed," Bhargava said.

The Noida unit of the company has about 15 employees and Bhargava said that the company would transfer the assets which are useful to the unit at Hyderabad.

"Though we are expected to incur some losses, it is too early to ascertain the losses on account of the sale of the assets in Noida," he said.

He also said that the company would make future equity offerings to financial investors and additional options may be issued under the employee stock option plan or employee stock purchase plan that could result in dilution to shareholding of existing shareholders.

Since the initial public offering in 2001, the company has raised Rs 17.39 crore through the issuance of shares or warrants on a preferential basis.

MosChip designs semiconductor products and develops software, which is licensed to MosChip USA, for which it earns a royalty. The company has acquired 100 per cent equity of MosChip Semiconductor Technology, USA, through a stock swap deal in 2001.

MosChip at present has six products in volume production. Another 11 products were launched during the financial year 2003-04. In some of these cases, MosChip USA has received small trial orders which are expected to pick up in the current financial year.