Rights Issue, Ipo Mobilisation Hit Nadir In 1997-98
The financial year 1997-98 turned out to be one of the worst years for the primary market with both public issue and rights issue mobilisations falling substantially. While mobilisation through public issues fell by 74 per cent, funds raised by listed companies through rights issues dipped 36 per cent, according to information compiled by Prime Database.
Only 51 companies entered the market with rights issues mobilising a meagre Rs 1743 crore during the recently concluded fiscal. This compares very unfavourably with the previous year which saw 131 rights issues raising Rs 2724 crore.
While the fall in funds mobilised was down by 36 per cent, the decline was a significant 61 per cent in terms of the number of issues that hit the market. The fall would have been even more alarming but for the Rs 799 crore issue of Ispat Industries which alone accounted for nearly 46 per cent of the years mobilisation.
The continuing fall in the rights mobilisation, according to Prime, can be ascribed to the poor state of the secondary capital market. In rights issues, the offer price has to be reasonably lower than the market price. The market prices of several good scrips have been much lower than their fundamental strengths, and coming out with an issue at any further discount would not been a very prudent move.
Moreover, the continuing depression in most scrips as well as high volatility make the rights offers unattractive by the time they open for subscription two to three months later, given the time-frame required by the guidelines. Investors apathy, Prime said, was also a major factor for the current state of the market. During the rights issues boom in the 1992-93 to 1994-95 period, most corporates took advantage of the free pricing guidelines.
For example, a record 488 companies had offered rights issues in 1992-93 aggregating Rs 12,630 crore, and many of them were at a very high premium. However, as most of these issues have subsequently led to significant losses, the investors fear has become stronger. Further compounding the dismal state now is the declining profitability of many corporates due to the slowdown in the economy, making any efforts at rights mobilisation that much more difficult.
The continuing poor state of the rights market has severely affected the expansion and diversification programmes of the listed companies. This has been further hampered, according to Prime, by the drying up of the public issue route with only seven listed companies in 1997-98 attempting to attract the investors through public issues. Worse, five of these seven issues ended up with a poor response from the public.
During the year, there were only three rights issues of above Rs 100 crore. These were from Ispat Industries (Rs 799 crore), Coats Viyella (Rs 156 crore) and BOC (Rs 131 crore).
The depressed secondary market has also forced the issuers to charge a lower premia. Only eight companies charged a premium above Rs 50 compared with 20 in 1996-97 and 57 in 1995-96 respective, says Prime.
Despite lower pricing, the response to issues was moderate. Some of the issues which faced problems were those issued by Gontermann-Peiper, Ispat Industries, Western India Plywoods and Coastal Papers. The issue of Denso India had to be cancelled due to poor response.
Given the state of the market and investors apathy, the new fiscal is also not likely to see any improvement in the situation. While Exide Industries (Rs 72.08 crore) and Talbros Engineering (Rs 1.41 crore) have already opened their rights issues in April, only 15 companies, till now, have approached Sebi for clearance of their rights issues, collectively to raise a meagre Rs 380 crore.
Some of them are Videocon Appliances (Rs 116 crore), Swil (Rs 115 crore),
Kerala Chemicals (Rs 32 crore), Gammon (Rs 17 crore), Manglam Cements (Rs 15 crore), Gruh Finance (Rs 13 crore) and Majestic Auto (Rs 13 crore).