SEBI mulls rationalising disclosure requirement for rights issue; cutting processing time

Markets regulator SEBI on Tuesday proposed to rationalise the disclosure requirements in the offer document and reduce the rights issue processing time to make it a preferred route of fundraising.

Additionally, the regulator has suggested enabling allotment to selective investors in rights issues, laying down adequate checks and balances and abolishing the requirement of appointing a merchant banker by an issuer for rights issues.

In its consultation paper, the regulator has proposed mandating the appointment of a 'monitoring agency' to supervise the use of proceeds from all types of rights issues of equity shares.

Currently, an issuer offering securities worth less than ₹50 crore through a rights issue is not required to rope in a monitoring agency.

Further, SEBI has recommended that in case the trading in the shares of the issuer is suspended at the time of making a rights issue, such an issuer should not be allowed to make a rights issue. However, the current rules do not prescribe eligibility conditions for making rights issues.

The proposals are aimed at making rights issues a preferred mode of raising funds as SEBI noted that the amount raised through rights issues in FY24 was lesser than the amount mobilised through other available modes, like QIPs and preferential allotments, during this period. Further, the number of rights issues was also substantially less than the preferential allotments.

The Securities and Exchange Board of India (SEBI) has sought public comments till September 10 on the proposals.

In the consultation paper, the regulator has proposed to rationalise the content of a 'Letter of Offer' by requiring it to disclose only the relevant information regarding the rights issue, such as the object of the issue, price, record date and entitlement ratio, among others.

"In case of Rights Issue, for an investor to take an investment decision, only additional information is required viz object of the issue, price, entitlement ratio, promoter’s participation, etc.

"Thus, it can be inferred that investing in a company by way of rights issue is more or less akin to a secondary market purchase. Hence, in case of rights issue, there seems to be no requirement for aggregating the information, which is already available in the public domain except for few issue-related information," SEBI said.

Also, SEBI has proposed to reduce the current indicative timelines of a rights issue to T+20 working days from the date of the board meeting approving the rights issue till the date of closure of the rights issue.

Currently, for non-fast-track rights issues, it takes 317 days on average to complete the process, from the date of board approval to the date of trading. Whereas for fast-track rights issues, it takes 126 days on average.

The regulator has suggested abolishing the requirement of appointing a merchant banker by an issuer for rights issues. Further, it has proposed to assign the activities, which are presently carried out by the merchant banker to the Registrar to Issue or stock exchanges.

Also, SEBI has proposed that validation of applications and finalisation of the basis of allotment, which is presently carried out by the Registrar to the issue, may also be carried out by stock exchanges and depositories, concurrently.

The regulator has also suggested relaxing the restrictions with respect to renunciation by promoters and allowing the promoter or promoter group to renounce their rights entitlement in favour of any selective investor.

This is subject to upfront disclosure of the details of such renunciation to be made through advertisement. Further, the same should also be disclosed to the stock exchange for dissemination on their website. The details of the disclosure should include the name of the renouncee(s), selective investor(s), name of the renouncer and promoter/promoter group, among others.

SEBI has suggested that the issuer may be mandated to disclose certain information in the proposed simplified 'letter of offer'. This includes details of the non-compliance with the listing agreement or the LODR rules for at least three years, the percentage of the complaints redressed by the issuer and in case the redressal is less than 95%, the reasons thereof and also, the issuer is required to disclose details of any show-cause notices.