According to sources, the promoters and financial institutions will subscribe to the rights issue in addition to their rights entitlement. However, the financial institutions are expected to pump in money in addition to the rights entitlement within 42 days from the closure of the issue. The company need not return whatever little money it has collected from shareholders if it manages to get the mandatory 90 per cent subscription within this period.

The poor response to the rights issue is despite the factthat Mangalam Cement had extended the issue by almost three weeks. The issue opened on August 10 and was scheduled to have closed on September 8. The rights issue finally closed on September 25.

The rights issue has been underwritten to the tune of Rs 4 crore by IDBI which does not have any stake in the company. If IDBI picks up 14 per cent optionally convertible cumulative preference shares of Rs 10 each worth Rs 4 crore, the institution will have a stake in Mangalam Cement on debenture conversion. This is also an opportunity for the promoter group (includes Kesoram Industries, the key promoter) to increase its stake from the current level of 21.9 per cent. If IDBI picks up Rs 4 crore worth debentures, the institutions and promoters have to pick up around Rs 6-crore debentures (including their entitlement).

Financial institutions hold a majority stake of around 46.31 per cent in Mangalam Cement. UTI is the largest shareholder in Mangalam Cement with 33 per cent, while LIC holds 7.69 per cent stake. Thepublic shareholders, who hold almost 31 per cent stake, have largely spurned the offer.

The poor shareholder response is understandable as the scrip has been trading below par for quite some time. During August 10 to September 9, the scrip was trading in the range of Rs 8-9.90. The scrip is still trading below par.

Mangalam Cement, an ailing company, has tapped its shareholders to repay the interest liability to the tune of Rs 14 crore due to these financial institutions. If all the shareholders opt for conversion, the equity will bloat to Rs 29.73 crore, further diluting earnings.

The OCCPS will be converted into equity shares of Rs 10 each at the option of the investors at end of 36th, 48th and 59th month from the date of allotment. Those who do not opt for conversion will get the redemption money at the end of 60th month from the date of allotment.