Description
At a time when entire world is going through difficult phase of pandemic, there are certain companies which are approaching capital markets or existing shareholders to raise capital in anticipation of funds requirement. More companies tapping stock markets either through primary issues or rights issues is not ruled out. The listed company comes out with a rights issue to raise equity capital at par or at premium to face value in order to repay its debt obligations, acquisition of assets, or facilitate business expansion without raising a loan for the purpose. Instead of a company going to the public, when a company offers its existing shareholders additional shares at a discount to the market price then that invitation to buy additional shares in the ratio and price fixed by the board of directors of the company is called as rights offer. The existing shareholders may or may not subscribe to the rights issue; they may renounce in part or full their entitlement to the existing or prospective shareholders.
The rights issue results in the dilution of the equity capital when equity base increases; the increased supply of shares in the market might lead to selling pressure, which would bring down the market price. The possibility of market interpreting rights issue to raise equity capital as warning sign is not ruled out, as it might be seen as an attempt to mobilize funds in a crisis time. At the same time, it is also seen as an opportunity for existing shareholders to increase their stake in a company, for reduced cost than market price.
Reliance Industries Ltd: The oil-to-telecom conglomerate offered shares to existing shareholders with the objective of bringing down its net outstanding debt. The company offered shares at Rs 1,257/- a piece in the ratio and other particulars stated in the table. The issue received overwhelming response to the issue size of Rs 53,125 crore, which is world's biggest by a non-financial issuer in 10 years, when it got subscribed to 1.59 times. The advantage of this issue was collection of rights share price in three tranches of 25% at the time of application; 2nd tranche of 25% in May 2021; and balance 50% in November 2021. The partly paid shares got listed around Rs 690/- whereas Friday closing price is Rs 1033/-, which means handsome gain of Rs 720/- approx. per share.
Arvind Fashions Ltd: The objective of raising Rs 400 crore from the existing shareholders is to invest Rs 250 crores in its subsidiary Arvind Lifestyle Brands Ltd; Rs 50 crore for prepayment/repayment of its debt obligations; while remaining rights issue proceeds will be used for general corporate purposes. The rights issue got subscribed 1.02 times, which closed on 17th July, was offered at Rs 100/- per share whereas closing market price of Friday was Rs 128/- on NSE.
Refex Industries Ltd: The company would be raising Rs 24.87 crore by way of rights issue, which is priced at Rs 45/- a piece whereas closing market price was Rs 48.10 on NSE. The company would utilize net proceeds to the extent of Rs 23 crore for working capital purpose whereas remaining portion would be used for general corporate purpose. The rights issue would be launched shortly for subscription.
PVR Cinemas: PVR is the market leader in multiplex market, which has come out with rights issue with the objective of utilizing net proceeds towards repayment/prepayment of debt obligations. A portion of the proceeds would be used for general corporate purposes as well. The rights share are being offered at a price of Rs 784/- a piece against Friday closing price of Rs 1038/- on NSE. The issue has opened for subscription on 17th July and closes on 31st July.
Shriram Transport Finance Ltd: The purpose of raising the funds is to augment capital base of the company. The rights offer price has been fixed at Rs 570/- per share against Friday closing price of Rs 690/- on NSE. The issue has opened for subscription on 16th July and closes on 30th July.
M&M Financial Services Ltd: Being a leading NBFC in the rural area, the purpose of raising funds is to augment capital base of the company. The rights offer price has been fixed at Rs 50/- per share vis-a-vis Friday closing price of Rs 208/- on BSE. The rights price is at a substantial discount to the market price. The issue opens for subscription on 28th July and closes on 11th August.
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