Rights issues to fall

This, according to Prime, compares very unfavourably with the corresponding period of the previous year, which had 111 rights issues raising Rs 2,539 crore. The fall in amount mobilisation is, as such, a significant 40 per cent while by number of issues, the decline is nearly 69 per cent.

This indicates that the companies are not spending money on expansion and diversification as like in the past years.

A major reason for the continuing fall in the rights mobilisation has been the poor state of the secondary capital market. In rights issues, the offer price has to be essentially lower than the market price.

Several good issuers have, in fact, abstained from making a rights issue as the current market prices does not reflect the fundamental strengths. Thus, making an issue at a further discount to the market price does not make any sense. To make mattes worse, the continuing depressions in most of the scrips as well as the high volatility make the rights offers unattractive by the time they open for subscription.

According to Haldea, for such bad state of affairs, corporates themselves could be blamed as during the boom time in the rights issues in 1992-93 to 1994-95, they took advantage of the free pricing guidelines. For example, a record 488 companies had offered rights issues in 1992-93 aggregating a phenomenal Rs 12,630 crore, many of these at a high premium. However, as most of these issues have led to significant losses, the investors8217;apathy has become stronger.

The declining fortunes of many corporates makes it difficult to launch any rights issues. The poor state of the rights market has notaugured well for the existing listed companies. While expansion programmes of several have been held up, the diversification projects too have taken a severe beating.

Despite lower pricing, the response to issues was moderate. Some of the issues which faced problems on the response front are Gontermann-Peiper, Ispat Industries, Western Indian Plywoods and Coastal Papers.