SEBI releases consultation paper to render rights issue as attractive mode of fundraise; reduce process to just T+20 days

The market watchdog Securities and Exchange Board of India (SEBI) has released a consultation paper for simplifying rights issue norms in respect of enabling faster Rights Issue with flexibility of allotment to selective investors.

In the previous fiscal year 2023-24, the Rs 15,440 crore was raised via rights issue, while through other methods such as QIP and preferential allotment, India Inc. mopped a total of Rs 68,972 crore and Rs 45,155 crore. 

The consultation paper noted that Rights  Issues, Preferential  Allotments,  Qualified Institutional  Placements  (QIPs)  are some of the means available to the company for raising further capital by way of issuing shares. So, as is indicated the number of issues, as well as the amount raised via the route, is relatively less in comparison to other modes despite apparent  benefits  associated  with  the rights Issue  such as  tradability  of  rights entitlement, proportional treatment for existing shareholders, it is observed that Rights Issue is still not a preferred mode of fund raising.

Thus, the SEBI mooted a review of the existing Rights Issue  process and in  this  regard, discussions were held with market intermediaries viz. Depositories, Stock Exchanges, Registrar to an Issue (RTAs), Merchant Bankers etc. for rendering it a preferred and attractive mode of fundraising.

On the consultation paper, the SEBI has sought comments or suggestions along  with rationale  not later  than September 1.

What has been proposed in the consultation paper in respect of rights issue?

In respect of the Rights issue, the SEBI has proposed to do away with the procedure of filing the draft document concerning the  Rights Issue. Also, for raising funds via the route, there is proposed that companies will longer be required to appoint a merchant banker.

"Further, it is proposed to assign the activities which are presently carried out by the  Merchant   Banker  to  the  issuer,  registrar  to  issue and Stock Exchanges/Designated Stock Exchange (DSE)," added the SEBI circular.

Also, the draft proposes to complete the entire rights issue process in now just T + 20 days; wherein T is the day when the board meeting for the approval of the rights issue was held. Currently, the process takes 100-300 days of time.

Additionally, the circular stated that the promoters through upfront disclosure should be allowed to allot the issue to select shareholders.