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ALMT, Khaitan & Co, Crawford lead field in cap markets rights issues ‘10-11

ALMT Legal, Khaitan & Co and Crawford Bayley have grabbed the maximum number of rights issue mandates in the financial year (FY) 2010-2011.

Over 40 rights issues were filed with the securities and exchange board of India (SEBI) during the last fiscal that had otherwise proven to be slow compared to the FY 2009-2010.

Rights issue follow a similar procedure to other capital markets public issues with rights issues being offered to existing shareholders of the company.

Law Firm Company mandates Bank mandates Total Rights Issues
ALMT Legal 4 4
Khaitan & Co 4 4
Crawford Bayley 4 4
JSA 3 3
ANS Law Associates 3 3
Bharucha & Partners 2 2
Amarchand Mangaldas 1 1 2
Sunil Shukla, Advocate 2 2

“It’s an option given to an existing shareholder to exercise his right to either subscribe or assign that right to another to assert party who can exercise the right on his behalf,” explained a law firm partner active in rights issues.

According to Delhi-based research firm Prime Database, Indian companies raised Rs 9,594 crore during FY 10-11 through rights issues witnessing a 15 percent hike over the preceding fiscal.

ALMT Legal Bangalore, Khaitan & Co and Crawford Bayley led the tally with four advisories each as J Sagar Associates (JSA) and Mumbai firm ANS Law Associates put three mandates each to position themselves in second place.

Khaitan & Co and international firm Jones Day advised on the largest rights issue of Central Bank of India raking in Rs 2,498 crore followed by other big issues EIH (Rs 1,179 crore) and Karnataka Bank (Rs 457 crore) as corporate counsel.

Amarchand Mangaldas and Linklaters also led on EIH’s rights issue where each respectively rendered domestic and international legal advice to the banks.

Approximately 50 per cent of funds mobilisation of up to Rs Rs 4,776 crore was undertaken by state-owned banking institutions and three law firms - ALMT Bangalore, Khaitan & Co and local law firm Ramani and Shankar - had helped in doing so.

“Banks have increased their capital base in the recent times and some of the banks have been asked to diversify their holdings by the Reserve Bank of India (RBI), which is why they are going into the rights issues as favourite route of raising money,” said ALMT capital markets partner S R Arun.

He explained that there are two objectives behind opting for a rights issue. First, to consolidate and fulfil promises made to the shareholders and second to comply with regulations and statutory requirements. “Rights issues are used for all these objectives rather than for just raising capital.”

ALMT had advised on the rights issues of State Bank of Bikaner and Jaipur (Rs 780 crore) and State Bank of Mysore (Rs 583 crore).

Other sizeable issue of Suzlon Energy, which raised Rs 1,308 crore where Bharucha & Partners and Linkaters advised the company with S&R Associates and Clifford Chance leading for banks.

JSA helped launch the rights issue of REI Agro that fetched Rs 1,245 crore.

Luthra & Luthra, AZB & Partners and S&R Associates with one rights issue mandate each were conspicuously inactive in the domain of rights issues having otherwise done well in IPO and QIP space.

Workload v fees

Arun said that lawyers’ work on rights issues depended on the timing and circumstances of the transaction. “Since it’s the same company giving to existing shareholders some of the documentation is simpler,” he said although the requirements of SEBI are still so “voluminous” that work that goes into an IPO and rights issues is almost the same in terms of the preliminary work but in the last stages it was slightly easier than the first time IPO. “Otherwise most of the compliances and background work for both is the same for law firms,” he said.

Arun said that the fees charged by lawyers for a rights issue would generally be comparable to that charged on an IPO unless the actual IPO happened five or fewer years before the rights issue. Overall fees varied according to the time, the size of the issue and the gap between the earlier issue and the rights issue, as well as on the planning of the company, general compliance and sectors. In the banking sector, for example, the risks were larger, accordingly structuring and compliance have to be done.

However, one capital markets partner from a larger capital markets firm claimed that from a fees perspective it was often unattractive for larger IPO-focused firms to pitch for rights issues because there was usually no involvement from foreign firms, which would handle the drafting of the business sections of a prospectus on an IPO.

That work would then fall on the domestic counsel in a rights issue, which could significantly increase the workload while clients expected fees that were the same.

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