Fund raising via rights issue drops 68% in H1 FY14

According to a report by Prime Database, companies mopped up Rs 6,749 cr lower in April-Sept period as compared to the corresponding period of the previous fiscal

Amid sluggish market conditions, fund raising by Indian companies through rights issues plunged by 68% to Rs 2,166 crore in the first half of the current fiscal.

According to a report by Prime Database, leading database on primary capital market, companies mopped-up Rs 2,166 crore in April-September period of 2013-14, lower than Rs 6,749 crore raised in the corresponding period of the preceding fiscal year.

In rights issue, shares are issued to existing investors at a pre-determined price, normally at a discount, in proportion to their holdings.

In the six-month period ended September 30, 2013, nine companies used the rights route to raise funds as compared to 10 firms in the year-ago period.

"Dismal and volatile market conditions through the year as well as an overall lack of confidence in companies to raise and deploy fresh capital were the main reasons for the poor utilisation of the rights route," Prime Database Managing Director Pranav Haldea said

He further said, "the balance part of the year is also likely to see little action on the rights front."

Currently, only 13 companies have obtained or have applied for market regulator Securities and Exchange Board of India (Sebi) approval for collectively raising a meagre Rs 652 crore, he added.

The largest rights issue in the period was from Godrej Properties (Rs 700 crore) followed by Reliance Mediaworks (Rs 600 crore) and Kesoram Industries (Rs 416 crore).

Besides, two companies (Pierce Leslie and Dalal Street) used rights issue route to dilute promoters' shareholding to comply with Sebi's requirement of 25% minimum public shareholding.

The report said that 32% of the mobilisation, at Rs 700 crore, was done by the real estate sector (one issue of Godrej Properties) followed by media 28% (Rs 600 crore issue of Reliance Mediaworks).