The Security Issuance Committee of Shriram Transport Finance Company (STFC) has okayed the proposal to launch Rs 1500 crores rights issues to its existing stakeholders. In a meeting on Monday, July 6, the committee agreed to issue rights issue to raise funds from the market.
In its filing announcement, the company declared that the promoter and Shriram Financial Ventures (Chennai) Pvt Ltd, a member of the promoter group agreed to subscribe to their rights scrips fully.
“Our promoter and Shriram Financial Ventures (Chennai) Pvt. Ltd, a member of our promoter group, has undertaken to fully subscribe to their Rights Entitlement and shall not renounce their rights, except to the extent of any renunciation inter-se between our promoter and other members of the promoter group.”
Shriram Capital Limited, the promoter of STFC, is 26.23 percent stakeholder in the company and the other promoter, Shriram Financial Ventures (Chennai) Pvt Ltd., carries 0.02 percent stake in the company. They have agreed to subscribe to their full rights quota as well for any additional unclaimed rights scrips.
A rights issue is a practised trend where companies issue additional scrips in the market to raise public funds. Instead of releasing regular shares, they release these shares to their existing shareholders at a pre-decided rate and portion. For Shriram Transport Finance rights issues, shareholders can enrol for three stocks for every twenty-six existing shares of STFC.
So, why do companies issue rights shares? Rights issues aren’t common. Companies issue rights scrips when they need fresh funds for large investment or acquisitions. Sometimes they also issue these shares to keep the market interest alive for the company.
Rights issues offer a company a higher equity base with leveraging benefits in the future and reduce the debt-to-equity ratio.
The floor price for STFC is decided at Rs 570 apiece, at 18 percent discount from its market closing price of Rs 697.50 on Monday.
The company has fixed July 10 as record date when the Security Issuance Committee will meet to take the final call on the rights of its shareholders.
Earlier this year RIL had announced rights issue subscription to reduce its net debt exposure. After 1500 crore rights issue by Shriram Transport Finance is announced, the market rallied to close at 4 percent high for STFC.
Rights issues help the company to expand its equity base and make them more confident to launch debt instruments in the future. As an investor, subscribing to rights issues could be an excellent opportunity to reinforce your portfolio and increase income potential.