Rights time

With stock markets on an upswing in the past month, there are signs of the effect rubbing on to the primary market as well.

Print Edition: May 28, 2009

With stock markets on an upswing in the past month, there are signs of the effect rubbing on to the primary market as well. Some companies have been returning to the market to raise funds. Last month, textile company Alok Industries raised Rs 450 crore through a rights issue that was subscribed 118%.

Another company, Adani Power, has approached the Securities and Exchange Board of India (Sebi) with a revised IPO plan estimated to raise over Rs 2,000 crore. This is the second time the company is planning to come out with an IPO: its previous attempt was scuttled by adverse market conditions. Aditya Birla Nuvo, the conglomerate of the AV Birla group with businesses ranging from fertilisers to financial services, is considering plans to raise fresh equity of about Rs 1,500 crore, mainly to finance the group's life insurance business.

A clutch of PSU banks is also planning rights issues. In what could be the country's biggest rights issue, the State Bank of India has approached the government for permission to raise Rs 20,000 crore during the current financial year. The proposal to raise tier I capital was because SBI estimates a fund requirement of Rs 60,000-70,000 crore over the next five years.

Others too are waiting to plunge in. “Nearly 20 companies have already applied or have obtained Sebi approval for raising Rs 4,198 crore,” says Prithvi Haldea of Prime Database. The major players are Fortis Healthcare (Rs 1,000 crore), Magnum Ventures (Rs 60 crore), Ramco Systems (Rs 131 crore), Religare Enterprises (Rs 1,850 crore), SGN Telecoms (Rs 50 crore), Syncom Formulations (Rs 100 crore) and Wire & Wireless India (Rs 450 crore).

According to Prime, there are at least 45 more companies that, in the past six months, have announced plans to tap the rights market. These include Bharat Forge (Rs 400 crore), Chettinad Cement (Rs 250 crore), Jaiprakash Associates (Rs 1,800 crore) and Tata Communications (Rs 1,000 crore).

The surge is partially due to measures like reducing the rights issue timeline from 109 to 43 days introduced by Sebi to make the process more attractive for companies. Sebi has also amended the listing norms to enhance disclosures on shareholding patterns. Unclaimed shares in IPOs will have to be credited to a demat suspense account maintained by the issuer till the rightful owner is allotted the shares. It has also decided to reduce the notice period for all corporate actions like dividends and bonuses from seven to two working days. To benefit retail investors, Sebi has asked firms to declare dividends on a per share basis, not percentage, which can mislead investors.
- By Rakesh Rai

Form change
The income tax return filing format will see another change in this season, according to the recent notifications by the Central Board of Direct Taxes. Effective from 1 April this year, all TDS payments will have to be made electronically. Earlier, only corporates and persons covered by mandatory tax audit were required to do so. Also, a new Form 24C has been introduced, which is to be submitted electronically every quarter for each TDS section. As for e-TDS statements, the formats of Forms 24Q/ 27Q have been modified. Besides, the formats of Form 16/16A have also been amended.

However, the most interesting change is that the entire system will now be based on a unique transaction number (UTN). The UTN will be a common link between a challan, TDS certificate and e-TDS statement, and will be provided by the Income Tax Department to simplify references. However, the department hasn't informed as to how the UTN number will be provided.
- By Narayan Krishnamurthy

No takers, yet
A little over a month ago, the UTI Fixed Term Income Fund Series V—Plan X became the first fixed maturity plan (FMP) to be listed on the stock exchange. Sebi made the listing mandatory after the liquidity crunch in October 2008, when the corporates exited FMPs and fund managers sold the debt papers that the FMPs had invested in. “The sale pushed the prices down, which dipped the net asset values of FMPs,” says Dhirendra Kumar, CEO, Value Research, a Delhi-based mutual fund tracking outfit.

To check the distress sale of FMPs, Sebi has prohibited fund houses from redeeming investments in FMPs before maturity. Hence, the listing, which was to make trading in FMPs similar to that in exchangetraded funds (ETFs). While eight schemes (see table) have been listed, not a single trade has taken place since the listing day because there are no buyers. In order to exit an FMP, an investor needs to sell units on the stock exchange that it's listed. But with no liquidity on the stock exchange, investors are stuck. Lack of liquidity is not the only reason. For trading, you need to know the underlying asset base. But in FMPs, there is no formal method of disclosure of portfolio contents and indicative yields can no longer be given. Hence, the lack of trade.
— By Narayan Krishnamurthy

Prepaid goodies
While prepaid instruments like meal vouchers have been around for some time, they have been limited by their use at specified locations. Now, banks will issue prepaid tools like vouchers and wallets worth up to Rs 50,000, which can be used to purchase goods as well as withdraw cash from ATMs. Including smart cards, magnetic strip cards, Internet accounts, mobile accounts, mobile wallets and prepaid vouchers, these instruments will have a validity of six months. The value stored in these can be paid as cash, debited to a bank account or by credit card. They are classified as semi-closed (used at all merchant locations), closed (specific locations) and open. While the first two cannot be redeemed or used to withdraw cash, the open version can.

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