Raising Capital by Rights Issue – What to Make Out of It?

We have all heard a lot about initial public offer (IPOs), follow-on public offer (FPO), Bonds, VC, Angel investors, etc. Right issues is one method (among many other) that is not widely discussed in open financial media. One the reason is it is an option available to existing shareholders only. By definition, the significance seems to the titled towards existing majority shareholders.

The essence of raising capital through rights issues is very simple. It allows existing shareholder an option to invest more money into business. It gives them that benefit as an existing shareholder.  Here, the company board of directors decides to sell new shares, at a pre-defined price, in order to raise capital. In general, but not necessarily always, the shares are offered at a discounted price than the prevailing market price at that point in time. It gives existing shareholders an option to buy new shares proportional to their existing shareholding. It gives them an opportunity to maintain their existing percentage shareholding and hence, not dilute their ownership. Continue reading rest of this article…

Capital Raising by Bonds: What to make out of it?

Indian economy has left the recession concerns behind and showed resilience. The equity market indexes reflect this positive environment. FII’s are pumping money into markets and Indian economy. So why should our Indian companies remain behind? Shouldn’t they also try to get capital from different sources either by IPOs, QIPS, or equity, or bonds? And that’s what we are seeing these days. Every Indian company is trying to grab capital from financial markets. Some are raising capital by means of issuing corporate bonds!

As per an data published by AK Capital Services Ltd, in FY2009/10, public and private sectors combined raised close to Rs 172,000 crore of capital from Indian and foreign markets. In FY2010/11, this figure is expected to be Rs 350,000 crore i.e. almost double. Majority of this comes from foreign markets. I do not have exact numbers, my guesstimate is 80%+ comes from foreign markets.

Examples are: SBI, IDFC, Union Bank, L&T

One reader asked, why a company like SBI (i.e. a bank) issues bonds to raise capital? It is already in the business of collecting deposits from people?

Simple answer to this question is: Banks like SBI, need more money than they can collect from deposits. Continue reading rest of this article…

Tata Investment Corporation: Can it be Treated like Mutual Fund?

Today, I am responding to generic questions about treating a holding companies like a mutual fund scheme. The point here is, not to say, my approach is the only right way. Right or wrong depends upon the context. It depends upon your objective. So without much ado, here I go….

……holding company having ‘Strategic stake Vs Financial Stake’ and treating(valuing) each of them differently simply because strategic stake may never get sold/realized. Do you factor in this difference in to your fair value calculation ? If yes, how ? The how part of the question is because as per my knowledge there is no such breakup provided in the AR Continue reading rest of this article…

Reader Questions related to Macroeconomics

Today, I am presenting a discussion I had with one the readers on macroeconomic issues. I am not an economist so I cannot explain in economist language. I attempted to present my understanding in a very layman language. I gave him a very simplistic view. So here you go.

I am trying to understand some macro economics concepts in addition to my continued focus on fundamental analysis.I was going through min paper yesterday and few doubts cropped up. In a column discussing the alternative to dollar,there was a discussion that pressure is mounting on china to make yuan freely convertible and let it appreciate more.   My questions are:

  1. Why is China not allowing its currency to appreciate by market forces like other countries(i understand that the currency is not entirely free,as central banks do interfere many times,but with China its very rigid).
  2. The column also says that rupee has not appreciated that much probably because india runs current a/c deficit.What does this mean and how it affects the currency.
  3. Finally ,the column says that most central banks are obliged to support their currencies.what does this mean.I mean what will happen if we let rupee appreciate to say 30rs..why cant be do that… Continue reading rest of this article…

Reader Questions and Answer

I receive questions in my email and I attempt to respond to all of them. I tend to ignore questions that fall into the category of “looking of quick tips or opinion”. I do not mean to be rude to individuals to whom I do not respond. But I believe in being thoughtful, objective, and worthwhile in my response. If I cannot, then I just leave it as is.

Once in a while I like to sample out few questions that may be applicable to wider audience. Since the last Q and A, I received few interesting ones and I am discussing below.

Quality of the Content in Blogosphere: why is it that free content sucks! Why are bloggers repeating the same content. Do you have any blogging study reference material which has done research to show blogging quality and its ability to earn side income.

Continue reading rest of this article…

Interesting Reader Questions

I receive questions in my email and once in a while I like to sample out few interesting ones. In last one month or so, I received two very interesting questions on which I presenting my thoughts below.

Why do you make your analysis very length and elaborate, although I like the completeness? Is it really required? Looking at EPS, P/E ratio and similar four or five parameters should be good enough to make a judgment decision.

Completeness cannot be obtained without being elaborate. Am I right? I do not now weather a length of analysis is required or not. In my view, length is not a barometer in my analysis process. I am looking for few things based on my objective, and I pursue it to understand it better. Many times I stop short knowing it is not going to be worthwhile to continue. I am looking for generating income using dividends and capital appreciation.

Continue reading rest of this article…