Mahindra and Mahindra Financial Services’ (Mahindra Finance) rights issue got subscribed 1.3 times. The opening date for the subscription was July 28 and the closing date was 11 th if August 2020.
What is the “rights issue”?
An invitation from a company to its shareholders to purchase additional shares in the company at a discounted rate. This issue provides its shareholder’s securities called rights. With the rights, the shareholders gain the ability to buy new shares of the company at a discount to the market price at a stated future date.
This type of activity are done by companies that are passing through tough times and the cash flow is down. They help them to raise additional capital that they might need to fulfill their current economic obligations. The companies use these to pay their debts, especially when they can no longer borrow money.
Not all companies offering a rights issue have to be in financial trouble. A company with a clean balance sheet night also issues rights to attract more investors. With the extra money it raised, the company might go for an acquisition or increase its business by opening new facilities or by increasing manufacturing or sales. This would offer an additional capital gain for the investors.
About the company:
Mahindra and Mahindra Financial Services Limited is a subsidiary of Indian conglomerate Mahindra and Mahindra (M&M). It is a non-banking financial company (NBFC). Their main area of work lies in providing financial services for the rural and semi-urban population. They provide financial services for new and pre-owned vehicles for commercial and personal use, like tractors. They also engage in offering loans for small and medium enterprises. Mahindra Rural Housing Finance Limited (MHRFL) also helps people of low and medium-income households build their dream houses. Along with these, the company also provides a fixed deposit, mutual fund distribution, and personal loans. Via tie-ups with various insurance companies, Mahindra Insurance Brokers Limited (a subsidiary of the company), offers insurance of life and non-life products.
Mahindra Finance Rights Issue:
Wednesday, was the final day of the share sale. The rights issue of the company met a demand of Rs 4000 crore worth of share against its offer size of Rs. 3088.82 crores.
Ramesh Iyer, the vice-chairman and managing director of Mahindra Finance stated that the success of the rights issue will enable the company to capitalize on growth opportunities. He also said this success would help them continue with the mission to “drive financial inclusion in rural and semi-urban geographies”.
The fund raised by the issue would help the company to pay off its debt and get the company back on tracks from the losses it made during the Coronavirus pandemic. It would also help them to take advantage of the situation that occurred from the effect of the pandemic.
The equity grant in accordance with the issue would occur around August 21. The statement also provided that the equity shares are expected to be listed on the BSE Limited and National Stock Exchange of India Limited on or about August 27, 2020.
The company reported a net profit of Rs. 156 crore in the quarter that ended in June. During the same quarter, last year, the net profit was Rs. 68 crore. The company’s net NPA stood at 5.72 percent. Last year this was 6.27 percent. Also, the gross NPA of the company changed to 9.19 percent from last year’s 8.17 percent in the same quarter.
In recent months, several companies went on the path of issuing rights to raise capital. Some of them being Reliance Industries Ltd, Shriram Transport Finance Co Ltd, PVR Ltd, Arvind Fashions Ltd, and Aditya Birla Fashion & Retail Ltd. Read about the Reliance Industries rights issue.