Rights issue mobilisation falls 36

MUMBAI, May 16: While mobilisation through public issues fell by 74 per cent in fiscal 1997-98 compared to the earlier year, fund mobilisati...

MUMBAI, May 16: While mobilisation through public issues fell by 74 per cent in fiscal 1997-98 compared to the earlier year, fund mobilisation by companies through rights issues to shareholders too presented a dismal picture.

According to Prithvi Haldea of Prime Database, only 51 companies entered the market with rights issues mobilising a meagre Rs 1,743 crore during the recently concluded fiscal. This compares very unfavourably with the previous year which had 131 rights issues raising Rs 2,724 crore. The fall in amount mobilisation is as such, 36 per cent while by number of issues, the decline is a significant 61 per cent.

The fall would have been even more alarming but for the Rs 799 crore issue of Ispat Industries which singly accounted for nearly 46 per cent of the year8217;s mobilistion. This issue incidentally failed to enthuse the investors.

The continuing fall in the rights mobilisation, according to Haldea, can be ascribed to the poor state of the secondary capital market. In rights issues, theoffer 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 on top of that making an issue at a further discount is obviously not prudent.

Worse, the continuing depression in most scrips as well as high volalitity make the rights offers unattractive by the time they open for subscription 2-3 months later, given the time-frame required by the guidelines. The investors8217; apathy, Haldea feels, is also a major factor for the current state of the market. During the rights issue boom in the 1992-93 to 1994-95, most corporates took advantage of the free pricing guidelines. For example, a record 488 companies had offered rights issue in 1992-93 aggregating Rs 12,630 crore, many of these at a very high premium. However, as most of these issues subsequently led to significant losses, the investors8217; fear has become stronger.

Further compounding the dismal state now is the declining profitability of many corporates dueto the slowdown in the economy, making any effort at rights mobilisation that much more difficult. Little wonder the continuing poor state of the rights market has severely affected the expansion and diversification of companies.

8220;This has been further hampered, by the drying up of the public issue route, with only a handful of 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,8221; Prime said.

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During the year, there were only three right 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 also forced the issuers to charge a lower premia: only eight companies charged a premium above Rs 50 compared to 20 in 1996-97 in 1995-96.

Despite lower pricing, the response to issues was moderate. Some of the issues which faced problems on the response front were Gontermann-Peiper, IspatIndustries, Western India Plywoods and Coastal Papers. The Denso India issue had to be cancelled due to poor response.

Given the state of the market and investors8217; apathy, the new fiscal, according to Prime, is not likely to see any improvement. While Exide Industries Rs 72.08 crore and Talbros Engineering Rs 1.41 crore have already opened their rights issues in April, there are only 15 firms as on date who have approached SEBI for clearance of rights issues, collectively to raise a meagre Rs 380 crore.