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Gujarat NRE Coking Coal's bid to raise more than $68 million from shareholders has failed, after just $35,000 was collected in a recent share offering.
The company opened a rights issue on May 6, allowing shareholders to buy one new share for every four they already held.
When the offer closed on June 19, only 175,674 shares out of a potential 344 million were sold.
The company planned to raise the $68 million to finance equipment and development at its mines at Russell Vale and Wongawilli.
Despite failing to entice shareholders to buy additional shares, Gujarat NRE Coking Coal will receive a $44 million injection of extra capital following the rights issue because the offer was underwritten by sister company Wonga Coal Pty Ltd.
Wonga Coal is part of the Gujarat NRE Group, which owned 63.98 per cent of Gujarat NRE Coking Coal shares as of May 7.
This means the NRE group will gain about 220 million extra shares, increasing its total interest in the coking coal company by about 5 per cent.
Wollongong stockbroker Doug Symes, from Novus Capital, said there were a number of reasons why shareholders may have declined to take up Gujarat's shares offer.
Mr Symes said the 20¢ issue price was well above the share price Gujarat had traded at for most of the past two months, meaning shares could be bought for less on the open market.
"Additionally, the mere fact that that company is in a position to need such a large amount of money would scare off a lot of shareholders," he said.
He also said many people were nervous about the price of coal.
Mr Symes speculated that the issue of new shares and the subsequent underwriting process may have been designed to raise capital from within Gujarat NRE, rather than attract extra money from external shareholders.
He noted there was no underwriting fee payable under the agreement between Gujarat NRE Coking Coal and Wonga Coal.
"They were giving shareholders the opportunity to be involved in the process, but in a funny sort of a way it doesn't really matter whether they take up the offer or not," he said.
"The underwriting process is there and the money will be invested anyway."
Mr Symes said Wonga Coal's willingness to underwrite such a large amount of money without the usual fee indicated a "fair amount of confidence" in the future of the company.
"It is quite a positive endorsement by the underwriter that they are prepared to take the shares without taking an underwriting fee," he said.
The Mercury yesterday revealed Gujarat NRE Coking Coal and Gujarat NRE Wonga had been ordered to pay $8.4 million for failing to report thousands of tonnes of greenhouse gas emissions by the federal government's June 17 deadline.
In addition, the NRE company last week requested its shares remain suspended from trading on the Australian Securities Exchange (ASX) as it continued negotiations to refinance its debt.
A Gujarat NRE spokesperson declined to comment on the share offering process yesterday, saying the company would let information from the ASX speak for itself.
