Rights issues are clawing back into relevance after hitting a 13-year low in 2016. In 2017, 20 companies raised Rs 6,579 crore through rights issues – more than three times the Rs 1,913 crore raised by 10 companies in 2016. And while market bouyancy is keeping this instrument from finding many takers at the moment, a few big issuances could skew the numbers in 2018. The biggest rights issue in 2017 was that of Indian Hotels, which raised Rs 1,500 crore. The company floated the issue to raise resources to meet its long-term financing needs for capital expenditure, growth plans, and debt repayment. Next in line was the issue of Canara Bank. The lender raised Rs 1,123 crore to strengthen its capital base. Banks dominated the rights issue segment in 2017, raising Rs 3,444 crore, or 52% of the total amount raised through such issues in 2017. South Indian Bank, Lakshmi Vilas Bank and Karur Vysya Bank entered the market with rights issues. Orient Paper, Mahindra Lifespace, Intellect Design Arena, HCL Infosystems and VIP Clothing were the other companies which floated rights issues in 2017. Market participants said the rights issues have lost importance over the years.
“Ever since qualified institutional placements (QIPs) were allowed, listed companies find it faster, cheaper and more efficient to raise money through that route. Rights issues are done only by companies who do not want promoters dilution to take place, or are looking at enhancing the stake of promoters, by subscribing to the unsubscribed portion of an issue,” said Prithvi Haldea, founder of Prime Database. Regarding the outlook for the next year, Haldea said even if the total amount raised is bigger it will be because of some big issues. Tata Steel recently announced plans to float a right issue to raise Rs 12,800 crore. With such a large issuance slated for 2018 already, the total fund raise through rights issues in 2017 will surely be surpassed, in fact with a few more offers it could be a record year. But Haldea cautions on such number optimism. “It is not good to look at only this parameter, the number of companies which are coming out with rights issues is also important. The number continues to be small and I don’t think the number will be much larger next year,” Haldea said.
Narayanan Sadanandan, executive vice president & group head, SBI Capital, believes a rights issue may not be the right instrument in the present market. “Rights issue is a good product when the prices are low, not when the price is at the peak. The best product when the price is peaking out is a QIP, where you can get a better value.” Some market participants said rights issues could pick up if there are reforms in the rules. “Rights as a component and rights as a medium has almost been forgotten in this market,” said GS Ganesh, founder of Inga Capital. “Today, it takes five months for the rights issue to get over. I think the time has come when you should curtail the issue to 30 days. You can easily do that because once you cut the size of the document and contents of the document, it takes not more than seven days to have the document. Make the rights issue timetable of 5 days. Nobody puts money in 15 days, they put money in the last three days,” he added.