“Securities Regulator Proposes Major Changes to Simplify Rights Issues”
The Securities and Exchange Board of India (SEBI) recently put forward suggestions to streamline the process of rights issues with the goal of making this avenue for fundraising more appealing. In a consultation paper, the regulator noted that in the last fiscal year, companies raised less capital through rights issues compared to other methods like qualified institutional placements and preferential allotments.
Some of the key proposals include mandating the appointment of a ‘monitoring agency' for all types of rights issues to oversee use of proceeds. SEBI also advised allowing selective allotment of shares to certain investors with appropriate safeguards. Notably, the requirement to hire a merchant banker may be removed, with their roles delegated to the registrar or stock exchanges instead.
To expedite the timeline, SEBI recommended trimming the indicative period from board approval to issue closure to just 20 working days from the current average of over 5 months. Content in the letter of offer was also proposed to be simplified by including only relevant details like objective, price ratio and promoter participation. Restrictions on promoter renunciation could see relaxation as well under the suggestions.
Public feedback will be collected until early September on the proposals aimed at streamlining rights issues. If implemented, these changes may help boost this route of fundraising for companies by reducing timelines and costs involved. Investors too should find rights issues more appealing due to the simplified process. Only time will tell if SEBI's recommendations achieve the desired effect of promoting rights issues as a preferred means of capital raising.
