The devolvement of rights issues of Tata Motors and Hindalco in 2008 seems to be a distant memory. A large number of promoters are now taking the cost-efficient rights issue route to shore up stakes in their companies and raise cash.
In a rights issue, shares are offered to shareholders at a discount to the market price. As most of these issues were planned when stock markets were going through a downturn, a swift run-up in equities has caused the discounts to widen.
According to Prime Database, as on January 1 this year, 26 companies had applied to the market regulator for rights issues. Of this, seven have been granted approval. While Prime Database expects that Rs 8,200 crore will be raised through these issues, investment bankers say the amount will be much more as success of some of these will prompt more companies to line up.
| LONG QUEUE Issues Where Offer Document Filed With Sebi* | |
| Company | Estimated Amount |
| Diamant Investment & Finance Ltd | 12.59 |
| Sadbhav Engineering Ltd | 125.00 |
| Hinduja Foundries Ltd | 50.28 |
| IBN18 Broadcast Ltd | 510.00 |
| Dewas Metal Sections Ltd | 1.56 |
| Gulf Oil Corp Ltd | 79.32 |
| Intellivate Capital Ventures Ltd | 12.13 |
| Rei Agro Ltd | 1150.00 |
| Sand Plast (India) Ltd | 11.60 |
| Jayshree Chemicals Ltd | 40.00 |
| Andhra Pradesh Paper Mills Ltd | 35.09 |
| Kavveri Telecom Products Ltd | 30.00 |
| Arihant Superstructures Ltd | 14.69 |
| Adani Enterprises Ltd | 1500.00 |
| Comfort Intech Ltd | 20.00 |
| Videocon Industries Ltd | 1200.00 |
| Apw President Systems Ltd | 6.05 |
| Asian Electronics Ltd | 30.72 |
| State Bank of Mysore | 600.00 |
| Total | 5429.02 |
| * Awaiting Approval (As On 01.01.2010) (Figures in Rs crore) | |
The recently-concluded issues of City Union Bank and Lakshmi Vilas Bank, subscribed 1.17 times and 1.66 times, respectively, have added to promoters’ optimism. “Both these were at a huge discount to the market price and were sort of bonus issues,” said an investment banker on condition of anonymity.
Experts say more banks will take this route to raise funds as they look to augment their capital. State Bank of Mysore has already filed the rights issue document with the Securities and Exchange Board of India (Sebi).
“Companies feel this is the right time to raise equity. For promoters who do not want to dilute stakes through follow-on offers, rights issues make sense, especially with Sebi cutting the timeline and the disclosures to be made. It is cheaper to do a rights issue in a depressed market when there is a question mark over investor appetite,” said Munesh Khanna, chief executive, Centrum Capital Markets.
“The capital needs of companies have increasead and so they are using a number of ways to meet raise funds. A number of promoters feel this is not the best time to dilute their holdings and hence are not going for qualified institutional placements or follow-on offers. The success of upcoming rights issues will depend on pricing. Sebi’s recent initiatives have helped but there is a case for further bringing down the timeline from the present four weeks,” said S Ramesh, chief operating officer, Kotak Investment Banking.
Companies that have received Sebi’s approval for rights issues are Luminaire Technologies, Futura Polyesters, Ashiana Housing, Tebma Shipyards, Swaraj Mazda, Religare Enterprises and Uttam Sugar Mills. Some of the large proposed issues are by Religare, which plans to mop up Rs 1,850 crore, Adani Enterprises (Rs 1,500 crore) and REI Agro (Rs 1,150 crore).
Fund-raising this year will be far higher than last year (Rs 3,626 crore), but is expected to be less than the 2008 and 2007 numbers of Rs 31,054 crore and 14,085 crore respectively.
“It is about unlocking value. If the company feels there is value to be unlocked, it can do that through a rights issue. For promoters, this is the best way to increase their stakes as these issues are at a discount. Moreover, the capital expenditure cycle has started and will gain momentum in the coming months, making it necessary for companies to raise funds”, said Gyan Mohan, head of investment banking at IDBI Capital Markets.
