Page 23 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management

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

1.2.3 Non-voting Shares

Non-voting Shares (NVS) are an innovative instrument for raising funds, although prevalent in
many developed countries for years. The non-voting shares are closely akin to preference shares
that do not carry any voting rights nor is the dividend payable pre-determined. However,
unlike preference capital, non-voting shares do not carry a pre-determined dividend.
The payoff to the investor for the assumption of higher risk levels and the compensation for loss
of control is the high rate of dividends payable to them. Companies that are shy of exposure
over leveraged companies, new companies and closely held companies can find NVS useful. It
may find favour with small investors, non-resident Indians, overseas corporate bodies, mutual
funds etc. The investor gains in terms of higher dividends, purchase at advantageous low price,
liquidity and capital appreciation.

Advantages

Various advantages envisaged for corporate entities and investors could be as follows:
1. Promoters of companies are likely to find favour with this instrument since it protects
their controlling interest. The promoting groups of many companies generally do not
expand as fast as they would like to because of their inability to raise large equity resources
without losing control of the company. With the introduction of this new instrument, the
promoters would be able to undertake large projects and implement them, thus giving
boost to industrialisation. The availability of NVS would simultaneously reduce the existing
management's fears of a hostile takeover.
2. A large number of average investors who hardly exercise their voting rights, especially in
the case of companies, with a good dividend track record, or otherwise would find
non-voting shares of well-managed companies and companies having reputed promoters
an attractive instrument of savings. Additional dividend may also be offered as
compensation.
3. Non-resident Indians/eligible corporate bodies in excess of the portfolio investment limits
prescribed for them can also use NVS for investment. In view of the constraints of raising

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