The Securities and Exchange Board of India on Tuesday proposed to make major changes in the rights issue by reducing the processing timeline, rationalising the letter of offer, abolition of merchant banker and allotment to selective investors to make it a preferred route of fundraising.
In its consultation paper, the regulator has proposed mandating the appointment of a ‘monitoring agency’ to supervise the use of proceeds from all types of rights issues of equity shares. It has suggested enabling allotment to selective investors in rights issues, laying down adequate checks and balances, and abolishing the requirement of appointing a merchant banker by an issuer for rights issues.
Currently, an issuer offering securities worth less than Rs 50 crore through a rights issue is not required to rope in a monitoring agency. Further, Sebi has recommended that in case the trading in the shares of the issuer is suspended at the time of making a rights issue, such an issuer should not be allowed to make a rights issue. However, the current rules do not prescribe eligibility conditions for making rights issues.
The proposals are aimed at making rights issues a preferred mode of raising funds as Sebi noted that the amount raised through rights issues in FY24 was lesser than the amount mobilized through other available modes — QIPs and preferential allotments — during this period. Further, the number of rights issues was also substantially less than the preferential allotments.
Sebi has sought public comments till September 10 on the proposals.
In the consultation paper, the regulator has proposed to rationalize the content of a ‘Letter of Offer’ by requiring it to disclose only the relevant information regarding the rights issue, such as the object of the issue, price, record date, and entitlement ratio, among others. “In the case of a rights issue, for an investor to make an investment decision, only additional information is required viz object of the issue, price, entitlement ratio and promoter’s participation,” it said.
“Thus, it can be inferred that investing in a company by way of rights issue is more or less akin to a secondary market purchase. Hence, in case of rights issue, there seems to be no requirement for aggregating the information, which is already available in the public domain except for few issue-related information,” Sebi said.
Sebi has proposed to reduce the current indicative timelines of a rights issue to T+20 working days from the date of the board meeting approving the rights issue till the date of closure of the rights issue. Currently, for non-fast track rights issues, it takes on average 317 days to complete the process — from the date of board approval till the date of trading, whereas for fast-track right issues, it takes on an average 126 days.
The regulator has suggested abolishing the requirement of appointing a merchant banker by an issuer for rights issues. Further, it has proposed to assign the activities, which are presently carried out by the merchant banker to the Registrar to Issue or stock exchanges.
It has proposed that validation of applications and finalization of the basis of allotment, which is presently carried out by the Registrar to the issue, may also be carried out by stock exchanges and depositories, concurrently. The regulator has also suggested relaxing the restrictions with respect to renunciation by promoters and allowing the promoter or promoter group to renounce their rights entitlement in favour of any selective investor.