Rights issue: How Sebi plans to transform fundraising through follow-on offers

Recently, SEBI published a consultative document proposing a faster reform question of rights with flexibility to allocate to selective investors. It is indeed remarkable to see the regulator leading by example. At the 21st FICCI Annual Capital Markets Conference, the regulator had indicated that it would streamline monitoring fundraising exercise for listed entitiesThis article surely lives up to the words.

Rights issue, qualified institutional placement and preferential allocation are some of the means that a listed entity has to raise more capital by issuing shares. For fiscal year 2024, capital issue The amounts through rights issue were approximately INR 15,110 crore, while preferential allotments amounted to approximately INR 45,155 crore.

Despite the benefits of rights issue, which includes marketability of rights and proportionate treatment to existing shareholders, rights issue has not been the preferred mode of fund raising. Therefore, to facilitate it, SEBI has suggested several measures such as significantly reducing the time taken to complete a rights issue, removing the requirement of multiple intermediaries including commercial bank, reducing the requirement of due diligence and review of the document by SEBI and most importantly, allowing selective investors to participate.

The removal of the requirement for merchant bankers for activities they perform, such as due diligence and filing of the offer document with the regulator, and permission for allocation to selective investors, now converts a rights issue into a preferential issue.

Some of the proposed measures are truly innovative and can have a very significant impact on follow-on fundraising. Firstly, this will reduce the end-to-end timeline for rights issue from the current 60-90 days to about 20 days. Secondly, it will enable allotment to a select few investors, which is only possible in QIBs or preferential issues. Thirdly, with the removal of the due diligence, commercial bank certificate and filing requirements with regulators, this will be as easy as preferential issue. With these changes, I expect the new methodology to become a new norm for any follow-on fundraising exercise by a listed company. These reforms highlight SEBI’s proactive approach to foster a vibrant financial market, which ultimately benefits both issuers and investors. In short, this new structure is a masterstroke by SEBI to make follow-on offering much easier, transparent and democratic. I’m sure the market will welcome it!(Disclaimer: The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of the Economic Times)