Fundraising through rights issue hits 10-year high at Rs 17,860cr; QIPs fall 70% YoY

Moneycontrol News 

Fund-raising through right issue has hit a 10-year high, with companies mopping up Rs 17,860 crore in 2018 so far, according to a Business Standard report.  The fundraise tops last year's tally by 2.7 times, the report states citing data from Prime Database.

In contrast, the amount raised through qualified institutional placements (QIPs) stood at Rs 16,100 crore, a 70 percent on-year fall.

The rights issue tally for 2018 has been boosted by some large issuances. The biggest one in 2018 came from Tata Steel, which raised about Rs 12,700 crore, to pare debt. Indiabulls Ventures and Piramal Enterprises each raised around Rs 2,000 crore.

Industry watchers told the paper they see large corporates now opting for a rights issue. The route fell out of favour in 2016 and 2017, with total funds raised at Rs 1,900 crore and Rs 3,500 crore, respectively. On the other hand, QIP issuances stood at Rs 4,700 crore and a record Rs 56,100 crore in 2016 and 2017, respectively.

Weakness in the broader market and rupee forced companies to prefer rights issues over QIPs, investment bankers told the publication.

QIP issuances, usually done when market conditions are favourable, are likely to remain muted till market conditions improve. Bankers told the paper that companies with dire capital requirements will have to explore the rights issue option.

A rights issue is preferred when promoters don’t want to dilute their holdings in a company, experts told the paper.

A number of companies have seen their market price freefall in the recent market correction. Ajay Saraf, Executive Director, ICICI Securities, told the paper that promoters may look to increase their holding in the company via this route as some minority shareholders may choose not to subscribe.

"It may not be prudent to raise further capital through QIPs following the market correction. Rights issue is the best way to do it. We will see a healthy pipeline for rights issues in the next 3-4 months," he added.

Regulatory modifications could raise the appeal of rights issues. “If the rights issue timeline is shortened, we will see issuances go up,” GS Ganesh, Founder, Inga Capital, an investment bank told the paper, adding that companies don't want to be caught in a situation where they may not have enough subscription because of a market correction.