right issue

Why companies are leaning towards the Right Issue?

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Finance acts as oxygen for the organizations. The continuous flow of finance in the organization is what keeps the business running healthy. There are several ways of how business can generate finance—Debt financing and Share financing are the two most common ways preferred by companies. But both these options have their advantages and disadvantages. In share financing, the ownership is divided with the shareholder whereas, in debt financing, the company is burdened with debt to repay. Moreover, the other deciding factor is whether the company is new or is well established. Over the last few months, the repayment of debt is buzzing in the finance world. Pandemic has caused a lot of distress in companies all over India. To release the pressure for a smooth function, companies are using the right issue to repay its debt and fight the upset caused by coronavirus.

The right issue is one of the most popular methods used by companies to generate financing. But, why the right issue? The right issue allows companies to offer new shares to the existing shareholders at a discounted rate. This keeps the ownership of the existing shareholders. In case, these shares are not accepted by the existing shareholder, then it is offered to the new shareholders. It helps in increasing the confidence of the shareholders in the company and they are also benefited from extra shares which means an increase in the dividend.

Here are the 5 companies utilizing the right issue to raise capital

  1. Mahindra & Mahindra Financial Services (Mahindra Finance)

On 12 August 2020, Mahindra & Mahindra Financial Services raised Rs3, 089 crores via a rights issue. The company issued 61, 77, 64,960 fully paid-up equity shares of the face value of Rs 2 each for cash. The Rights issue price was fixed at Rs 50 per share (including a premium of Rs 48 per equity share).

  1. Reliance Industries Ltd

On April 30, 2020, Reliance Industries announced its rights issue of Rs.53, 125 crores. The share was priced at Rs 1,257 per share with share ratio at 1:15 i.e., eligible shareholders are allowed to subscribe to one equity share for every fifteen shares held.

  1. Shriram Transport Finance Co Ltd

Shriram Transport Finance Co Ltd issued Rs 1,500 crore right issues. The issue has been fixed at Rs 570 per share, including a premium of Rs 560 per rights equity. The rights entitlement ratio is of three rights equity shares for every 26 equity shares.

  1. Arvind Fashions Ltd

Arvind Fashions Ltd issued Rs 400 crore right issues. The issue was subscribed to 1.41 times. The face value of Rs 4 each share was for Rs 100 each.

  1. Aditya Birla Fashion & Retail Ltd

Aditya Birla Fashion & Retail Ltd approved Rs 995 crore right issue with the face value of 10 each.

Also read : Coronavirus: Impacting the Stock Markets and Major Companies

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