Sebi on rights issue:India’s market regulator SEBI has presented a new consultation paper with the aim of promoting rights issue. Many such suggestions have been given in this consultation paper of SEBI, which will make disclosure for rights issue of shares easier than before and will also reduce the processing time of the issue. SEBI has released these important suggestions on Tuesday to know the reactions of all parties including investors. SEBI believes that implementation of its suggestions will promote the use of rights issue as a method for companies to raise funds. SEBI has also expressed concern in its consultation paper that according to previous data, companies have used rights issue very little to raise funds.
Tips to simplify your offer letter
SEBI has proposed to simplify the ‘Letter of Offer’ of rights issue and include only information related to the rights issue, such as the purpose of the issue, price, record date and entitlement ratio. SEBI says that “In the case of rights issue, an investor needs only additional information while taking an investment decision. Such as the purpose of the issue, price, entitlement ratio, promoter participation etc. Therefore, it can be concluded that investing in a company through a rights issue is almost like buying shares from the secondary market. Therefore, in the case of rights issue, there is no need to collect information other than the issue related information, which is already available in the public domain.”
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The time taken for rights issue will be reduced
Under the current system, the entire process from board approval to the trading day for a non-fast track rights issue takes an average of 317 days. On the other hand, a fast track rights issue takes an average of 126 days. But SEBI has expressed its intention to reduce this time to T+20 working days in its consultation paper.
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Appointment of merchant banker is not necessary
SEBI has also suggested eliminating the need to appoint a merchant banker for rights issues. Apart from this, the regulator has proposed to assign those activities to the Registrar-to-Issue or stock exchanges, which are currently performed by the merchant banker. SEBI has also proposed that the validation of the application and finalization of the basis of allotment, which is currently done by the Registrar-to-Issue, can also be done simultaneously by stock exchanges and depositories.
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Appointment of a monitoring agency should be mandatory
Among the suggestions given by the market regulator, proposals such as facilitating share allotment to selective investors in rights issue and strengthening the system of checks and balances for the issue are also important. SEBI has also proposed to make it mandatory to appoint a ‘monitoring agency’ to monitor the use of proceeds from rights issue of all types of equity shares. Under the current rules, if the company bringing the issue issues shares worth less than Rs 50 crore, then it does not need to appoint a monitoring agency.
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Ban on rights issue while trading is suspended
SEBI has recommended in its consultation paper that if the trading of shares of a company is suspended, then it should not be allowed to bring a rights issue during that time. Whereas under the existing rules, no such condition is applicable for bringing a rights issue. The aim of these proposals of SEBI is to make rights issue a preferred method of raising funds, as SEBI has observed that the amount raised through rights issue during the financial year 2023-24 (FY24) has been much less than other available methods, such as QIPs and preferential allotments. Apart from this, the number of rights issues has also been very low. SEBI has sought feedback from the general public on these proposals by September 10.
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SEBI has suggested that the issuer may be required to disclose certain information in the proposed simplified ‘offer letter’. This may include details of non-compliance with the listing agreement or LODR rules for at least three years, the percentage of settlement of complaints and the reasons for the same if settlement is less than 95 per cent and details of any show-cause notices.
