Fund-raising via rights issue declines 44% to Rs 4k cr

Our Bureau Mumbai | Updated on January 07, 2014 Published on January 07, 2014

The amount raised through rights issue in 2013 declined 44 per cent to Rs 4,101 crore against Rs 7,295 crore last year, according to Prime Database.

Going by numbers, the year 2013 witnessed 12 companies using the rights route against 17 companies in the previous year.

Volatile market conditions through the year, delays in the rights issues process and an overall lack of confidence in companies to raise and deploy fresh capital were the main reasons for the poor use of the rights route believed Pranav Haldea, Managing Director of Prime Database.

A rights issue is a way by which a listed company can raise additional capital. However, instead of going to the public, the company gives its existing shareholders the right to subscribe to newly issued shares at a pre-determined price, normally at a discount, in proportion to their existing holdings.

The largest rights issue in the period, as per Prime Database, was from Bajaj Finance (Rs 744 crore), followed by Godrej Properties (Rs700 crore) and Reliance Mediaworks (Rs 600 crore).

According to Haldea, the rights issue route was additionally used by two companies-Peirce Leslie and Dalal Street to dilute promoters' shareholding to comply with SEBI’s requirement of minimum public shareholding of 75 per cent.

While the Dalal Street's issue of Rs 9 lakh was successful, Pierce Leslie had to refund the amount collected from the investors as it was not able to obtain the minimum subscription.

While 18 per cent of the mobilisation of rights issue at Rs 744 crore was done by the financial services sector followed by Media and real estate at 17 per cent each.

Going forward as well, the outlook for rights issue is likely to remain muted, according to Haldea. 

"As of now, 2014 is also likely to see little action on the rights front. According to us, at present, there are only nine companies wishing to raise Rs 881 crore which have SEBI approval while there are another six companies wishing to raise Rs 396 crore which have applied for SEBI approval," he added.

Published on January 07, 2014
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