Rights issue mobilisation falls 61%

The mobilisation of money through rights issues in India has witnessed a 61 percent fall during the financial year 2008-2009.

According to Prithvi Haldia of Prime Database, instrumental in collecting capital market related data, 2008-2009 year saw only Rs 12,622 crore raised through rights issue compared to Rs 32,518 crore being raised in the previous financial year.

"This year only 23 companies opted for rights issue compared to last years 30 companies," said Haldia.

While the public issue market was dead after the failure of over one billion dollar Emmar MGF Land IPO followed by Wockhardt IPO, the rights issue market crumpled in October after two mega rights issues devolved adding to the nervousness.

The Rs 5,000-crore Hindalco rights issue was priced at Rs 96 per share. But on the day the issue opened, the stock traded at Rs 65. The issue devolved on the underwriters as it was hugely under subscribed. Similarly, the Rs 4,145-crore Tata Motors' issue also devolved on its merchant bankers after share prices fell to Rs 243.90 – way below the offer price of Rs 340.

However, over the last few months, the Securities and Exchange Board of India (Sebi) too has been introducing a slew of measures to make the process of rights issues more attractive for companies.

Among other things, the market regulator reduced last year the timeline for a rights issue from 109 days to 43 days. Recently, it also introduced a discussion paper on its website, inviting comments for further relaxation in terms of the paperwork required for such issues. The proposals include non-disclosure of the company’s business details, and the basis of the issue price, floor price and price band.

Following this, 20 companies have filed their offer documents with Sebi to raise over Rs 4,000 crore through rights issue.

Top companies which have filed their rights issue offer documents with Sebi include Fortis Healthcare (Rs.1000 crore), Magnum Ventures (Rs 60 crore), Ramco Systems (Rs 131 crore), Religare Enterprises (Rs 1850 crore), SGN Telecoms (Rs 50 crore), Syncom Formulations (Rs 100 crore), Tebma Shipyards (Rs 350 crore) and Wire & Wireless India (Rs 450 crore) among others.

In addition there are at least 45 companies, which have announced their plans in the past 6 months to tap the rights market. Some of them include Bharat Forge (Rs.400 crore), Birla Power Solutions, Chettinad Cement (Rs 250 crore), Dewan Housing Finance (Rs 105 crore), Suzlon Energy (Rs 1800 crore), Tata Communications ( Rs 1,000 crore), and Jaiprakash Associates (Rs 1,800 crore) among others.