Many small and mid-size companies are planning to cash in on the sharp recovery in share prices by offering global depository receipts (GDRs).
In the past one month, 20 companies have informed stock exchanges about plans to raise a total of around $1 billion (Rs 4,535 crore) through GDRs.
Already, seven companies have raised $226 million (Rs 1,025 crore) through this route, on top of the $102 million (Rs 462 crore) raised by two companies, Bombay Rayon Fashions ($97 million) and Rishabhdev Tehnocable ($5 million), in November.
| QUICK FACTS GDR issued ($ million) | |||
| Plan to raise | Already raised | ||
| Saamya Biotech | 40 | Dish TV | 100 |
| BAG Films | 30 | Bombay Rayon | 97 |
| Edserv Softsystems | 25 | Shree Ashtvinayak Cine | 72 |
| Nissan Copper | 20 | Sujana Towers | 30 |
| Info-Drive Software | 20 | Sujana Metal | 30 |
Gautam Chand, chief executive of Instanex, said, “The demand for Indian paper is rising due to the weakening dollar. US interest rates should stay at the lower end of their long-term averages due to lack of demand for US-based investments. This will lead to higher interest rates and a stronger rupee, besides high equity returns, in India.”
“India’s growing economy and low global interest rates are driving overseas investors in search of high yields. And, mid-cap is the place to be,” said Prashant Sawant, an analyst at London-based KNG Securities LLP. “Domestic capital expenditure is picking up and promoters are willing to dilute stakes. GDRs, rights issues and public offers are debt-free instruments and work best in rising equity markets. Therefore, there is a rush for GDR and rights issues,” he said.
In the 2006 boom, mid-and small-cap companies raised money through foreign currency convertible bonds (FCCBs), proposed to be converted into shares at a hefty premium to market prices. The FCCBs are now virtually debt instruments as the market value of many issuer companies has crashed over 50 per cent and so investors are not converting these into equity shares.
The funds that these small- and mid-cap companies are raising through GDRs are likely to be used for expansion and working capital requirements.
Bombay Rayon Fashion has raised Rs 452 crore and plans to use the money to meet the working capital needs of its expanded facility in Maharashtra. Edserv Softsystems plans to raise Rs 120 crore ($25 million) for its school segment and the online services market. Saamya Biotech expects to raise Rs 190 crore ($40 million) for working capital needs.
The issue of shares on conversion of GDRs into equity is likely to dilute the equity capital of these companies by 15-50 per cent. So, the issuers are planning to increase their authorised capital to accommodate the additional shares. Nissan Copper, which has planned a $20-million (Rs 92 crore) GDR issue, proposes to increase its authorised capital to Rs 60 crore from Rs 40 crore. The company also plans to increase the foreign instutional investment from 24 per cent to 60 per cent.
Saamya Biotech plans to raise Rs 190 crore ($40 million) through GDRs and proposes to increase its authorised capital from Rs 25 crore Rs 125 crore. The authorised capital of BAG Films is to increase from Rs 30 crore to Rs 40 crore, while Beckons Industries is set to increase its capital from Rs 38 crore to Rs 80 crore.
