The Securities and Exchange Board of India (Sebi) has proposed several changes to make rights issues a preferred mode of fund raising.
The regulator has suggested doing away with filing a draft letter of offer with it for observation. It would also dispense with the requirement of appointment of merchant bankers and reduce the timeline to 20 days from the board approving a rights issue until the date of closure of the exercise.
At present, non- fast track rights issues take on average 317 days to complete the process, while fast track right issues take about 126 days.
“Despite apparent benefits associated with the Rights Issue viz. tradability of rights entitlement, proportional treatment for existing shareholders, it is observed that Rights Issue is still not a preferred mode of fund raising,” Sebi said in a discussion paper on Tuesday. Amount raised through rights issues is lesser than the amount raised through other modes such as qualified institutional placement(QIP) and preferential allotments in the last three financial years. Further, the number of rights issues are also substantially less than the preferential allotments, the regulator said. Sebi data shows that while a total of Rs 15,110 crore was raised through rights issues in FY24, it was significantly lower than Rs 68,972 crore raised through QIP or even Rs 45,155 crore raised through preferential allotments.Rights Issue is one of the method of raising additional capital that involves issuance of shares to the existing shareholders in proportion to their shareholding in the company.
Sebi said in case of rights issue, for an investor to take an investment decision, only additional information is required such as object of the issue, price, entitlement ratio and promoter’s participation. Hence there is no requirement for aggregating the information which is already available in the public domain.
“It can be inferred that investing in a company by way of rights issue is more or less akin to a secondary market purchase,” the regulator said.
In another major change, Sebi has proposed to relax the restrictions with respect to renunciation by promoters and allow them to renounce their rights entitlement in favour of any selective investor provided upfront disclosures of the same are made.
Currently, rules restrict promoters from renouncing their rights, other than to the extent of renouncement within the promoter group, in case the issue has not achieved the minimum subscription criteria.
Once the application is made by the selective investor against the rights entitlement renounced to them by the promoters, such selective investor will not be permitted to withdraw such applications, Sebi said.
