The Securities and Exchange Board of India (SEBI) has proposed several changes to make rights issues the preferred method of raising funds.
The regulator has suggested doing away with filing the draft letter of offer with it for scrutiny. It will also meet the requirement for appointment of merchant bankers and reduce the timeline for approving rights issue to 20 days till the date the board closes the exercise.
Currently, non-fast track rights issues take an average of 317 days to complete the process, while fast track rights issues take around 126 days.
“Despite the apparent benefits associated with a rights issue. Marketability of rights entitlements, proportionate treatment to existing shareholders, it has been observed that rights issue is still not the preferred mode of raising funds,” Sebi said in a discussion paper on Tuesday.
The amount raised through rights issue is less than the amount raised through other modes like Qualified Institutional Placement (QIP) and preferential allotments in the last three financial years. Further, the number of rights issues is also significantly less than preferential allotment, the regulator said.
SEBI data shows that while in FY24 a total of Rs. 15,110 crore was raised through rights issue, it was raised through QIP of Rs. 68,972 crore or raised through preferential allotment of Rs. 45,155 crore was significantly less than Rs.
A rights issue is a method of raising additional capital that involves issuing shares to existing shareholders in proportion to their shareholding in the company.
Sebi said that in case of a rights issue, the investor only needs additional information such as the purpose of the issue, price, entitlement ratio and promoter participation to take an investment decision. Hence there is no need to collect information already available in the public domain.
“It can be inferred that investing in a company through a rights issue is similar to a secondary market purchase,” the regulator said.
In another major change, SEBI has proposed to relax restrictions on waiver by promoters and allow them to waive their rights in favor of any preferred investor, provided prior announcements are made.
Currently, the rules prohibit promoters from waiving their rights, except to the extent of waiving within the promoter group, if the issue has not achieved the minimum subscription criteria.
Once an application is made by a preferred investor against the rights granted to him by the promoters, such preferred investors shall not be permitted to withdraw such applications, Sebi said.
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