The city-based IT companies, which are facing paucity of funds during these testing times, seem to be depending on rights issues to quench their thirst.
While unlisted companies have no means of raising funds in the current situation because of dried-up venture funding, some of the listed companies are brave enough to enter the capital markets with rights issues.
As an early trend, a till few months back, promoters themselves were infusing fresh equity by going in for preferential allotments to stave off the funds crisis faced by their companies. This was serving two purposes for them - On one hand, they were fulfiling the fund requirements of their companies and on the other, they were increasing their stakes in equity at a lower price.
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But with the equity markets remaining dormant, they realised their folly and stopped making preferential issues. In fact, a city-based IT company withdrew its proposal to make a preferential offer after obtaining shareholders' approval.
Fortune Informatics, Goldstone Technologies, Goldstone Teleservices and VJIL Consulting were some of the prominent names that went for preferential issues during 2002.
The trend, then, seems to have shifted towards rights offerings. In the past one year, at least four companies have made rights issues or obtained approval from their shareholders to make a rights issue.
While SQL Star International and Cybermate Infotek have successfully raised funds, Weal Infotech has filed draft prospectus with Sebi in February this year to make a rights issue. Color Chips is the recent addition to this list, which proposes to make both, a rights and a preferential offer.
However, raising funds through these rights offers is not an easy job in this depressed markets. For instance, Cybermate's rights offer was to be extended twice. The issue, which opened on March 11, was originally slated to close on April 9, but was extended to April 25 and to May 6 later.
The company is understood to have successfully closed the issue finally. The company offered 48,70,650 equity shares of Rs 10 each at par aggregating to Rs 4.87 crore on rights basis in the ratio of one share for every two shares held.
Interestingly, the company managed to raise funds at a time when the share price was hovering over Rs 4 to 5.
Colour Chips is the latest entrant to announce rights issue plans. The company will convene an extraordinary general meeting shortly to seek approval for the proposed 1:1 rights issue and a 3 million shares preferential offer.
It is learnt that the company plans to make these offerings at Rs 10 per share against the current market price of Rs 7.50. It hopes that its issue will be through if the investors get convinced about its plans to foray into the high-end animation business.
Over all, the promoters seem to have found some solace with investors being benign towards them.