What’s wrong with the rights offerings?

The issues of ‘rights offerings’ have been in the news for quite some time now. With some companies recalling their rights issues and putting their future growth in jeopardy, a few others have promoters who are capturing a majority of their own stock, at a low price.

India’s top conglomerates, Tata Motors and Hindalco, who effected mega mergers and acquisitions (M&As), continue to face a money crunch. In the recent rights issues, both promoters ended up picking a lot of their own shares as investors stayed away.

The Tata Motors promoters put over Rs 3000 crore in the Rs 4145 crore rights offering.

That's 72 per cent of the offer, more than double of what had been underwritten by JM Financial for this issue. The company also revamped its financing pattern several times. The latest was the calling off of the overseas issue offering.

Moreover, the resource crunch indicates that coupled with a downturn in the sector and rising costs it has led to a slowing on planned capex.

Even, Hindalco that declared strong earnings on higher sales, on Friday came out to defend its right issue.

Although the Hindalco issue has failed, the management on Friday said they had a loan of a billion dollars tied up from banks and would meet the residual $1 billion needed to repay its $3.03 billion bridge loan through treasury liquidation.

Besides these two resources seeking corporates, there might be several others planning rights issues.

Malvinder Singh promoted Religare enterprises, launched a rights issue to raise Rs 1800 crore, but even before the investors could consider it, the promoters said upfront that any unsubscribed amount would be picked up by the promoters.

With the markets under pressure, the companies going for right issue are certainly being bold, but the bigger question is whether this is the promoters’ way of just capturing their own stock for much less?

Source: ndtvprofit