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Rights issues are back in favour. Do you think companies such as Tata Motors are doing the right thing by making rights issue when neither the economy nor the company is upbeat?

Supriya Ragavachari, Chennai

Tata Motors, for example, is mobilising funds for its cross-border acquisitions. I think rights issue may dilute the earnings per share as well as the market value thereof but at the end of the day it is infinitely more desirable than the invidious private placement mode because it has the effect of shutting out completely the shareholders. I think those who want the shares of the company through the short cut of private placement should be made to bid for the rights that may be renounced for an attractive price.

It is just as well that the NSE is soon going to open an electronic trading platform for rights.

Shareholders would find this transparent and convenient and would not be at the mercy of brokers who alone have hitherto been the takers for the renounced rights often giving less than the true worth for the rights renounced.

In fact, the company law should be amended so that it brooks no exception to the rights norm except to the limited extent of giving ESOPs to employees.

S. MURLIDHARAN

More Stories on : Rights Issue | For the Asking

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