The Securities and Exchange Board of India (Sebi) has proposed several changes to make rights issues a preferred means of raising funds.
The regulator has proposed to scrap filing of draft offer documents for oversight, remove the requirement to appoint a merchant banker and reduce the deadline between the board’s approval of a new share issue and the end of exercise date to 20 days.
Currently, non-fast track warrant issuances take an average of 317 days to complete, while fast track warrant issuances take approximately 126 days.
“Despite the obvious advantages associated with rights issue such as tradability of rights and proportionate treatment to existing shareholders, it is observed that rights issue remains not the preferred mode of fund raising,” the Securities and Exchange Board of India (SEBI) said in a discussion paper on Tuesday. In the last three financial years, the amount raised through rights issue has been less than the amount raised through other modes such as qualified institutional offers (QIPs) and preferential allotments. Moreover, the number of rights issues has also been significantly less than preferential allotments, the board said. As per SEBI data, the total amount raised through rights issue in FY24 is Rs 15,110 crore, which is significantly lower than Rs 68,972 crore raised through QIPs and Rs 45,155 crore raised through preferential allotments. Rights issue is a method of raising additional capital by issuing shares to existing shareholders in proportion to their shareholding in the company.
Sebi said in case of rights issue, investors only need additional information like issue subject, price, rights ratio, promoter participation etc to take an investment decision. Hence, there is no need to aggregate information already publicly available.
“It can be inferred that an investment in a company through a rights issue is more or less similar to a secondary market purchase,” the regulator said.
In another major change, SEBI has proposed to ease restrictions on waiver of rights by promoters and allow them to waive rights in favour of selective investors, provided the promoters disclose their rights in advance.
Currently, if an issue fails to meet the minimum subscription threshold, the rules restrict promoters from waiving their rights, except to the extent of waivers within the promoter group.
In case a selective investor has made an application against the rights waived by the promoter, the selective investor cannot withdraw the application, SEBI said.
