Why did the company choose a rights issue to de-leverage?

AIS had to raise capital through equity to pay off debt obligations.

The company had 3 options,

1. To issue preference shares for which it would have to pay regular dividends whenever

it made profit, and in case if it did not make profit, the dividend amount would be

carried forwarded to the next period. This would be expensive and limit growth

potential and also the company wouldn’t enjoy a tax shield.

2. The other method was to make a public offering but since the company had reported

losses in the previous two years it would be difficult for the company to elicit a

sufficient response from the public and that also at a fair valuation.

3. The third method was a rights issue that is basically selling shares to existing

shareholders at a discount which was the only feasible and more economical than

public issue cause of the floatation costs related with a public issue. Another

important factor was the negative covenants imposed by their lenders which did not

allow any reorganisation, amalgamation, reconstruction, reconstitution, takeover or

any other scheme of compromise or arrangement. Therefore, a rights issue is the most

economical way to deleverage.