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Corporate Corporate - Rights Issue Rights issue mop-up hits new high at Rs 14,000 cr in 2007
‘Some issuers see it as a way to reward their shareholders as the issue of new share to the existing shareholders is made at a price which is normally lower than the current market price. The offside is that a rights issue does not allow companies to derive the price they deserve’ 
Moumita Bakshi Chatterjee New Delhi, Jan 12 Indian companies raised over Rs 14,085 crore through various rights issues in 2007, marking the highest-ever mop-up in a single year, and almost four times more than in 2006. The rights issue of Tata Steel accounted for a significant chunk of the total mobilisation in 2007, helping the year surpass 1992-levels when companies raised Rs 11,311.92 crore through 468 rights issues. Tatas’ mega issueThe Tata Group company had announced a mega rights issue of about Rs 9,134 crore in November 2007 to repay the ‘bridge loans’ raised for funding acquisition of British steel behemoth Corus. Federal Bank, which raised close to Rs 2,141 crore; Hindustan Oil Exploration Ltd, Rs 610.95 crore; GTL Infrastructure Ltd, Rs 336.4 crore; and ITD Cementation India, Rs 244.72 crore completed the list of the top issues of 2007. The 2006 list of the largest rights issue included Aditya Birla Nuvo, Bajaj Auto Finance Ltd, Tata Teleservices Maharashtra and Tata Coffee among others. Certain advantages“However, it is not as if rights issue is becoming popular route for companies to raise money as only 29 companies opted for this in 2007 against 39 companies in 2006 and 32 in 2005. It has certain advantages as it allows promoters to maintain their shareholding. “Some issuers see it as a way to reward their shareholders as the issue of new share to the existing shareholders is made at a price which is normally lower than the current market price. “The offside is that a rights issue does not allow companies to derive the price they deserve,” said Mr Prithvi Haldea, Managing Director, Prime, a database dedicated to the primary capital market. Long-drawn processIn addition, the rights issue involves a long-drawn process — anywhere about 3-5 months, including the time taken to prepare the offer document, and also because the issue itself is open for a month. “Rights issue can actually take off in a big way as it involves existing shareholders who understand the company well, and the company does not have to convince new set of investors. But the process needs to be shorter and once that happens the price discount can also be smaller,” he pointed out. According to Prime, the number of such issues were much higher between 1990 and 1996, ranging anywhere from 130 to as high as 468. A rights issue is an offer to the holder of an existing security (such as a share) to buy new securities issued by the same company, usually at a discount to the current market price. Whyte & Mackay buy: UB to repay debt by March Tata Steel rights to raise Rs 9,654 cr Tata Steel raising $2.3 b for Corus payment More Stories on : Corporate | Rights Issue
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