Sebi on the issue of rights: The Securities and Exchange Board of India (Sebi) has proposed several changes to streamline the rights issue process, including reducing disclosure requirements in offer documents and shortening processing time, in an effort to make rights issues a more attractive method of raising funds.
The regulator’s proposals also include allowing selective allocation to investors in rights issues, implementing appropriate checks and balances and removing the requirement for issuers to appoint a merchant banker for rights issues.
In its consultation paper, Sebi suggested that issuers be made required to appoint a “monitoring agency” to oversee the use of proceeds from all types of equity share issues. At present, issuers offering securities worth less than Rs 50 crore through an issue of shares are not required to engage a monitoring agency.
Furthermore, Sebi has proposed that issuers whose trading has been suspended at the time of making a rights issue should be prohibited from making such issues. Currently, there are no specific eligibility conditions for making rights issues.
These proposed changes are aimed at promoting rights issues as the preferred method of fundraising. Sebi noted that in FY24, the amount raised through rights issues was lower compared to other methods such as qualified institutional placements (QIPs) and preferential allotments. The number of rights issues was also significantly lower than that of preferential allotments.
Sebi is seeking public comments on these proposals till September 10.
One of the key proposals is to simplify the content of the “offer letter” for rights issues, requiring that only essential information such as the purpose of the issue, price, record date and proportion of rights be disclosed. The regulator noted that since rights issues are similar to secondary market purchases, there is no need to add information that is already available in the public domain, except for the specific details of the issue.
Sebi has also proposed to reduce the current indicative timeframes for rights issues to T+20 business days, starting from the board meeting approving the rights issue to the closing of the rights issue. Currently, non-fast track rights issues take an average of 317 days to complete, while fast track rights issues take around 126 days.
The regulator further suggested abolishing the requirement for issuers to appoint a merchant banker for rights issues, and that the associated activities be assigned instead to the Registrar of the Issue or the stock exchanges. Sebi also proposed that validation of applications and finalisation of the allotment basis, which is currently handled by the Registrar of the Issue, can be carried out by the stock exchanges and depositories simultaneously.
Furthermore, Sebi recommended relaxing restrictions on waivers by promoters, allowing them to waive their rights in favour of selective investors, provided that this is disclosed in advance through an announcement and on the stock exchange for public release. Details of such waivers, including the names of the parties involved, should be disclosed.
Finally, Sebi suggested that issuers be required to include certain information in the simplified ‘Offer Letter’, such as details of non-compliance with listing agreements or LODR rules during the last three years, percentage of complaints resolved by the issuer, reasons for unresolved complaints if resolution is less than 95 per cent and details of any show cause notice received.
(With PTI inputs)
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