Page 82 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Unit 5: Primary Market

Rights issue is the cheapest and convenient method of raising funds and protects the interest of Notes
the existing shareholders against the dilution of their ownership.

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Case Study TOUAX Success of Rights Issue

OUAX is a French company and is currently Europe's no.1 in shipping containers
and river barges, and no. 2 in modular buildings and freight railcars. The Group
Tprovides operating leases to customers around the world, both on its own account
and for third-party investors.
On June 24, 2009, TOUAX announced that its capital increased by waiving preferential
subscription rights but with priority for existing shareholders, launched on 18 June 2009
for a total of E17,851,519.76 (gross) through the issue of 936,596 new shares which were
subscribed in the entirety. Following partial application of the extension clause, 952,747
shares were placed or 101.72% of the issue; total proceeds were E18,159,357.82.
This rights issue has enabled the Group to strengthen its financial structure, to position
itself with advantage for possible acquisitions of tangible stock, and to grasp opportunities
thrown up by the crisis (purchase of shipping containers, modular buildings, river barges
and railcars, for hiring out on mainly long-term leases). 370,062 new shares allotted under
absolute entitlement were subscribed or 39.51% of the total number of new shares on
issue. Another 555,685 shares were applied for subject to cutting back in the event of over-
subscription, and orders for these were all filled. Another 27,000 shares had been applied
for by the general public, and following partial application of the extension clause it
proved possible to fill orders for all of these.

As the result of the rights issue, TOUAX is well placed to respond to the boom in corporate
outsourcing of non-core assets, and every day provides over 5,000 customers with quick
and flexible leasing solutions. TOUAX is now listed on Euronext in Paris - NYSE Euronext
Compartment C (ISIN Code FR0000033003), and features in the SBF 250 Index.

Questions:
1. After analyzing the case, do you think all the companies that can afford, should opt
for rights issue to improve their financial status?

2. What do you analyse as the 2 main advantages of the rights issue?
3. What do think can be the risks posed by rights issue?

5.3.5 Over-the-Counter placement

This method has come to be employed in recent years, especially after the commencement of the
operations of Over-the-Counter Exchange (OTCE) in 1992. The OTC permits small companies to
raise funds through its exchange. Under this method, the company intending to raise funds through
OTCE appoints a member of the OTCE as sponsor. The sponsor appraises the project and values
the shares of the company. The shares are placed by the sponsor with itself and other members and
dealers of the OTCE. The sponsor ensures the success of the issue even if it is required to subscribe
to all the shares by itself. The OTCE members and dealers operate counters to facilitate trading
with investing public. The distribution of shares through OTCE has to be made as per the SEBI
guidelines. This method of selling securities is most suited to small enterprises.

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