Bearing The Fund Crunch

The past couple of weeks have drastically altered stock market strategies for many companies. Most have been aware from the month of March that their future financing questions need very specific answers. The banking system is on shaky ground with each bank simply refusing to lend money to a company no matter how credible or in need of capital it is. Companies have been trying to squeeze loans out of banks and are in returning paying ridiculously high amounts of interest in return. Some companies are paying interest as high as 35 %.Thus many companies have decided to sell more shares of their brands in an effort to raise funds. While this was the right thing to do even 6 weeks ago, it isn’t anymore because the savviest of investors are refusing to part with cash.

Consider a company like Tata Motors. Many analysts feel that the company is posed for steady growth. It’s got a good demand for vehicles from trucks to cars and sometime next year it should release the Nano, which could do for the company what the Beetle did for Volkswagen.

Based on such sentiments Tata Motors declared their rights issue earlier this month which in no uncertain terms has massively flopped. There have been very few buyers for the twin rights issue which was aimed at financing the acquisition of the Jaguar and Land Rover brands. The rights issue was being offered at two levels: 1) Shares that cost less with lesser voting rights but higher dividend and 2.)Shares with equal voting rights but lesser dividends.

The kicker of course came in when Tata Motors closed it rights issue realizing that it had to buy its own shares along with the issue’s underwriters. Those who did however invest in the right issue are surely kicking themselves because the Tata Motors scrip is currently trading at sub 200 levels in the market and that’s a lot lesser than both the price bands in the twin rights issue!

They’re not the only ones with problems. The IPO market which flourished during the Indian Bull Run for almost 4 years has practically disappeared. Many companies had relied on the launch of their IPO’s to bring in funding but now have been forced to look elsewhere. India’s premier wind turbine maker Suzlon has cancelled its $360 million IPO fearing that an IPO at this time is destined to flop.

Even public sector companies like BSNL are feeling the pinch. A few months ago the BSNL IPO made proper sense and rightly so it doesn’t now and will in all probability be put on the back burner. Another government franchise Oil India has scrapped plans to launch its long awaited $378 million IPO amid fears of a buyer boycott.

However, even in the midst of all this there have been a few companies which have resorted to backing their policies. Auto parts maker Federal-Mogul Goetze has decided to go ahead with its Rs 1.3 billion rights issue .This has raised questions but the company feels that it’s the right thing to do which has left even more perplexed.