VR Logo

Rights Issues Log 61% Fall

Shareholders' response to companies' efforts at fund mobilisation suffered in 2008-09

The year 2008 was not only a bad year for the initial public offers (IPOs), it was equally tough for the companies that looked towards its existing investors raise more capital.

This was the case in spite of it being a golden opportunity for investors to increase their holdings at a discount. According to Prime Database's Prithvi Haldea, rights offers are made at a discount to the market price, and hence are able to draw a better shareholders' response, especially when the secondary market is doing well.

But that was not to be.

That the response to Hindalco's Rs 5,048 crore rights issue (the largest during the period) and that of Tata Motors Rs 4,146 crore rights issue was dismal would be a gross under-statement. Not only were these two the biggest, but what was worse, they set the trend for the year as well, perhaps scaring investors away in droves.

One of the effects was that many rights issues were thereafter, unveiled at a lesser discount than was expected, which ultimately hit promoters adversely. The total rights issue for 2008-09 in terms of numbers was just 23, compared to 30 for the year ago period.

Understandably, the total amount mobilized through these issues also took a huge hit. These companies were able to raise only Rs 12,622 crore, i.e. a stomach-churning drop of about 61 per cent compared to the previous financial year (Rs 32,518 crore was mobilized in 2007-08).

However, this load of bad news does not seem to have bent the backs of Indian corporates. They are looking to the future in an optimistic manner. Some 20 companies have applied for or obtained SEBI approval. These include Fortis Healthcare (Rs 1,000 crore), Magnum Ventures (Rs 60 cr), Ramco Systems (Rs 131 cr), Religare Enterprises (Rs 1,850 cr), SGN Telecoms (Rs 50 cr), Syncom Formulations (Rs 100 cr), Tebma Shipyards (Rs 350 cr) and Wire & Wireless India (Rs 450 cr).

However, these plans, to a large extent, are dependent on how the secondary market is performing.

History of Rights Issues
Year  No. of Rights Issues  Rights Issue Amount (Rs Cr)
1992-93 488 12630
1993-94 384 9306
1994-95 351 6793
1995-96 291 6520
1996-97 131 2724
1997-98 49 1703
1998-99 26 568
1999-00 28 1560
2000-01 27 729
2001-02 13 1041
2002-03 12 431
2003-04 22 1006
2004-05 26 3616
2005-06 36 4126
2006-07 38 3703
2007-08 30 32518
2008-09 23 12622
Source: Prime Database