Sebi eases rights issue norms

Mumbai: The Securities and Exchange Board of India (Sebi) has changed the age-old minimum subscription requirement in rights issues, a move aimed at making fundraising easier for companies.

At present, the regulations required companies doing a rights issue to ensure minimum 90% subscription.

“In most cases, promoters undertake to subscribe to additional rights in case there is an under-subscription. In few cases, bankers also underwrite the issue and there have been odd cases where the banker had to arrange subscription to meet the 90% requirement,” said Pranjal Srivastava, an independent investment banker.

The regulator on Wednesday said the mandatory 90% minimum subscription would not be applicable to those issuers where object of the issue involves financing other than financing of capital expenditure for a project, provided that the promoters and promoter group of the issuer undertake to subscribe fully to their portion of rights entitlement.

“The current change is a good enabler by Sebi as it will give confidence to companies and promoters to launch rights issues in the current volatile market conditions without having to ensure that all shareholders subscribe to the rights,” Srivastava said.

This year, between May and August, 11 companies including Reliance Industries and Shriram Transport Finance Company have raised Rs 60,000 crore through rights issues.

Sebi has also allowed truncated disclosures for rights issues. It said companies can file financial statements and periodic reports for last year instead of the last three years as required earlier. That is also applicable to cases where three years have passed after change in management following acquisition of control.

“Disclosure requirements have been rationalised to avoid duplication of information in letter of offer, especially the information which is already available in public domain and is disclosed by the companies in compliance with the disclosure requirements,” Sebi said in a statement on its website.

Sebi has also increased the threshold to Rs 50 crore from Rs 10 crore for prospective issuers to file with Sebi the rights issue draft letter of offer for the regulator's observations.

“The issuer shall be eligible to make fast-track rights issue in case of pending show- cause notices in respect to adjudication, prosecution proceedings and audit qualification, provided that necessary disclosures along with potential adverse impact on the issuer are made in the letter of offer,” Sebi said.