India Inc mobilses 32000 Crore over rights Issue

Thursday, April 03, 2008 | | |

India Inc has mobilised a record over Rs 32,000 crore through issue of shares on rights basis in fiscal 2007-08, driven by the mega issues from State Bank of India and Tata Steel, a latest report says.

However, the picture may not be that rosy in the current fiscal due to the subdued secondary market conditions, according to primary market database provider Prime.

Corporate India has raised Rs 32,518 crore through right issue in the last fiscal, a jump of over eight-fold as compared to Rs 3,703 crore that was raised in FY 2006-07.

Rights route refers to issuing rights to a company's existing shareholders to buy a proportional number of additional shares at a given price, usually at a discount, within a fixed period.

The mobilisation of funds in the last fiscal have made history as it was more than even the combined mobilisation of the preceding 12 years.

More than half of the year's mobilisation came courtesy the country's largest lender SBI's rights issue, while another 28 per cent was taken up by Tata Steel.

"These issues, in a sense, were exceptional issues and are not indicative of any trend," Prime founder and managing director Prithvi Haldea said.

The largest issue from State Bank of India mobilised Rs 16,736 crore and other Rs 1000 crore-plus issues were from Tata Steel (Rs 9,135 crore), Federal Bank (Rs 2,141 crore) and Indian Hotels (Rs 1,447 crore).

Response to all 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 shareholders' response specially when the secondary market is doing well, Haldea added.

Meanwhile, there were only 30 companies which used the rights issue route for raising funds last year. This was lower by 21 per cent over the previous year that had seen 38 issues and nowhere near the 488 companies that had made rights issues in 1992-93, the report said. Haldea said that the new fiscal (2008-09) has not started well, courtesy the subdued secondary market conditions. Around 20 companies have already applied for or have obtained SEBI approval for raising Rs 1,855 crore.

Some of the major ones include Dhandapani Finance (Rs 50 crore), Entegra (Rs 100 crore), GE Capital Transportation Financial Services ( Rs 250 crore), Impex Ferro Tech (Rs 40 crore), JK Tyres, Lotte India (Rs 175 crore), Oudh Sugar (Rs 50 crore), Shopper's Stop (Rs 500 crore) and United Breweries (Rs 425 crore).

In addition, there are at least 35 companies who have in the last six months announced their plans to tap the rights market and may firm up their plans in the near future. These include Anil Products (Rs 10 crore), Bhushan Steel, Dunlop India, GMR Industries (Rs 250 crore), Ispat Industries (Rs 1000 crore), Jet Airways ( Rs 1600 crore), Tata Power and Thomas Cook (India) (Rs 225 crore), the Prime report said.

The floatation plans of all these companies are, of course, subject to a stable, if not a buoyant, market, Haldea added