Explained: The Boom In 2024 Right Issues

With Rs 17,087 crore raised so far this calendar year, the total is already 2.4 times that of the full year of 2023, which stood at Rs 7,266 crore.

Buoyant market conditions have provided a fertile ground for listed companies to raise capital through rights issuance.

With Rs 17,087 crore (Rs 177.08 billion) raised so far this calendar year, the total is already 2.4 times that of the full year of 2023, which stood at Rs 7,266 crore (Rs 72.66 billion).

This also marks the highest amount raised since 2021, when 11 firms collected Rs 27,771 crore (Rs 277.71 billion).

Half a dozen companies have already concluded fundraises of more than Rs 1,000 crore (Rs 10 billion) each via rights issues this year, with the average ticket size also doubling compared to last year.

The largest of these was Aditya Birla Group's flagship company Grasim Industries, which raised Rs 4,000 crore (Rs 40 billion) at the start of the year.

Sammaan Capital (formerly Indiabulls Housing Finance) raised Rs 3,693 crore (Rs 36.93 billion) in February, and tea beverage major Tata Consumer Products completed its nearly Rs 3,000 crore (Rs 30 billion) issuance just earlier this month.

Rights issues allow listed firms to raise new capital by offering new equity shares to existing shareholders, typically at a discount to the market price.

This mechanism enables promoters to maintain their stake while sending a positive signal to investors.

"Many corporates are now clear about avoiding misguided diversification and focusing on their core businesses where they have a competitive edge," said Ajay Garg, founder of Equirus.

"When opportunities arise, they prefer investing in their own business, and the safest instrument is a rights issue," explained Garg.

"A preferential issue might be seen as unfair to other shareholders, while promoters cannot participate in qualified institutional placements (QIPs)," Garg added.

"The choice between rights issues and other funding modes depends on promoters' willingness to subscribe," said Pranjal Srivastava, partner at Centrum Capital. "Rights issues have become a simpler and faster process, making them an attractive option for promoter-driven companies."

Notably, most rights issuances this year have been rewarding for shareholders.

The current share prices of all 13 companies that have raised funds this year are above their rights issue prices amid a positive secondary market undercurrent.

The benchmark National Stock Exchange Nifty has gained 11 per cent this year, while the Nifty Midcap 100 and the Nifty Smallcap 100 are up about 20 per cent each.

Among large companies, Grasim, Tata Consumer, and IIFL Finance have all seen gains of over 34 per cent each.

Importantly, shareholders who chose not to participate in the rights issue have been able to sell their rights entitlement (RE) at an attractive price during a special trading window that opens before the rights issue subscription.

For example, one RE of Tata Consumer was sold in the range between Rs 301 and Rs 390.

While fundraising through rights issues was common in the 1990s, bankers note that the current trend is driven more by company-specific factors rather than broader market sentiment.

"Companies opt for rights issues only when specific conditions are met. In cases of urgent funding needs or opportunities, they may prefer QIPs instead," explained Srivastava.

"The choice also depends on the sector; for instance, most banking, financial services and insurance companies tend to favour QIPs, while promoter-driven companies often choose rights issues for their own strategic reasons," Srivastava added.

Earlier this month, Securities and Exchange Board of India Chairperson Madhabi Puri Buch announced that the regulator is working on a new fundraising avenue for listed companies that will reduce turnaround time and boost private capital expenditure.

She mentioned that the new mode of fundraising will borrow from the frameworks governing rights issues and QIPs.

Feature Presentation: Aslam Hunani/Rediff.com