Companies are now increasing looking at their existing shareholders to raise funds. The latest to join the group of firms which have announced rights issue is Jaiprakash Associates. The parent company of the diversified infrastructure group is looking to raise as much as Rs 1,800 cror ($365 million) through the issue. JP Group is expected to use the funds to build the 1,047-km Ganga Expressway in UP and the Formula One facility in Noida, which are previously announced projects.
The announcement comes at a time when similar issues by the two most well known names in Indian business – Tatas(Tata Motors) and Birlas(Hindalco) failed to attract their own shareholders and the promoters had to chip in with extra cash to carry the issue through. Some others who have announced such rights issues include Suzlon and Dish TV.
The credit crisis has made it very difficult for companies to raise funds through either debt or equity route. Nevertheless, companies are going in for rights issues as it is now being seen as the last resort.
Infact there has been a rise in the number of rights issues in the first half of this financial year even as all other equity issues- IPO, FPO, FCCBs, QIP etc have seen a sharp drop as investors keep are keeping away from the equity markets in the wake of global financial meltdown and concerns of an economic slowdown leading to a secular bear market.
Jaiprakash Associates holds 63% equity in JP Hydro and over 95% in JPVL. JPVL, which currently runs a 400 MW hydropower project and has several other power generation projects at different stages of implementation, earlier planned to go in for an IPO, but deferred it
due to poor market conditions.