Rights issue mop-ups fall 34 in H1

Resource mobilisation via rights issues recorded a huge decline in the first half of 2006-07, according to figures released recently by Prime Database.

Resource mobilisation via rights issues recorded a huge decline in the first half of 2006-07, according to figures released recently by Prime Database. The period saw only Rs 686 crore being raised, lower by 34 per cent than Rs 1,031 crore raised in the corresponding period of the preceding year.

In terms of numbers, the period witnessed 21 companies using the rights route, compared to 20 in the corresponding period of previous year.

The largest issue in the period was from Hindustan Oil Exploration Co Rs 149 crore. Other Rs 50 crore plus issues included OCL India Rs 76 crore, Upper Ganges Sugar Rs 68 crore, and Gruh Finance Rs 60 crore. The response to most issues of the year was good. Rights offers are made at a discount to the ruling market price, and hence are able to draw in shareholders8217; response specially when the secondary market is doing well.

Companies offered shares on rights basis either to expand, diversify or simply to restructure their balance sheets. Moreover, in some cases, promoters raised their stake in the company at a reasonable price.

However, scores of companies continued to prefer to meet their fund requirements through preferential allotments of equity. Several companies also tapped the overseas markets through the GDR, ADR and FCCB routes. Sebi8217;s restrictive guidelines on rights issues have acted as a deterrent to companies opting for this route, and it is heartening to note that the regulator has now decided to rationalise them.

Going forward, though, things seem to be looking up in the rights issue space. In this bullish market, 31 companies have applied for or have obtained Sebi approval for raising Rs 3,856 crore. Some of the major ones include Bajaj Auto Finance Rs 950 crore, Aditya Birla Nuvo Rs 780 crore and Tata Coffee Rs 249 crore, among others.

In addition, there are at least another 53 companies that have, in the last six months, announced their plans to tap the rights market, including Champagne Indage, Bank of Rajasthan, Jindal Hotels and Lyka Labs.