The Capital Markets Regulator, with an objective to make the fund raising through Rights Issue route easier, faster and cost effective has decided to come out with the following amendments in SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018:
I. Waiver of mandatory 90% minimum subscription criteria
Mandatory 90% minimum subscription criteria for Rights Issue will not be applicable subject to fulfillment of following:
- Object of the Issue involves financing other than financing of capital expenditure for a project.
- Provided further that the Promoters & Promoter group of the issuer fully subscribe to their rights entitlement.
SEBI promulgated this relaxation from erstwhile 90% of minimum subscription to 75% of it, during the COVID 19 pandemic and has now decided to make it permanent, s.t. certain conditions. This relaxation will surely assist the Listed India Inc. to raise better funds via the Rights Issue mode. In many a cases under the erstwhile 90% minimum subscription regime, it used to happen that in a situation the Public did not subscribe to their full entitlement and the Promoters , in order to attain minimum subscription, had to subscribe to their full extent, which used to lead to Promoters’ crossing the 75% threshold, thus leading to violation of the MPS norms. With 75% minimum subscription, this situation may be taken care of.
II. Green Flag for Companies to make ‘Fast Track Rights Issue’ in case of pending show-cause notices
Companies will now be eligible to come out with Fast Track Rights Issue, in case of pending show-cause notices w.r.t. 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.
Even this relaxation was promulgated by the Regulator, as a COVID 19 relaxation, but has now decided to make it a permanent clause. This surely is a welcome move, wherein even pending these proceedings, a Fast Track Issue may be brought out, thus once again assisting the Companies to raise funds better via the Rights Issue route.
III. No Requirement of filing of Letter of Offer to SEBI for Rights Issues upto Rs. 50 cr
The threshold for filing of Letter of Offer with SEBI for seeking its observations has been increased from erstwhile Rs. 10 crores to Rs. 50 crores.
Increasing this threshold, will lead to curtailment of the entire life cycle of a Rights Issue from appx. 5 months to appx. 3 months. By virtue of this amendment, the Letter of Offers would be needed to be filed with the Stock Exchanges to seek their In Principle Approvals.
IV. Curtailed Disclosure in Letter of Offer as against the earlier requirement of Detailed Disclosure
Waiver of disclosure of requirements of Part A, which is meant for IPO/FPO offer document, for Rights Issue. The disclosures will be as follows:
|Disclosure under Part B||
| Disclosure under Part B-1
(New set of disclosure)
|All other issuers not satisfying Part B eligibility conditions shall make disclosures under Part B-1. (Yet to be notified)|
Schedule VI of ICDR Regulations is divided into various parts, out of which Part A (which are a detailed set of disclosures, almost akin to a Public Issue document) and Part B (little compressed set of disclosures, subject to conditions stipulated therein). As per the erstwhile Part B, inter alia, companies that were not in compliance with the Listing Regulations during last 3 years; or wherein there had been a change in control or a listing pursuant to a scheme of arrangement, the Company was needed to make the disclosures as per the Part A of Schedule VI, i.e. the detailed ones. Now, SEBI has decided to bring in a new Part B1, which will be more detailed than Part B, but truncated compared to Part A. This will curtail a lot of hardships of the Companies wherein there had been change in control in the past or the Company had got listed pursuant to Rule 19(2)(b) of SCRR.
With the sudden increase in number of Rights Issues in the current financial year wherein within the 1st 6 months of the fiscal, there have already been around 14 Rights Issue offers, SEBI is taking all the measures to make it easier for Indian Inc. to raise funds via Rights Issue offering by carving out the challenges faced by them in carrying out the transaction. These reforms will further reduce the turnaround time in raising funds by the Companies and will also reduce the duplicity of disclosure and efforts.
As against the earlier relaxations granted by SEBI vide circular April 21, 2020 which were temporary in nature, the current amendments will be permanent.
So, in the coming times we can see the Rights Issue becoming one of the most time and cost efficient mode of raising funds by the Companies as compared to other modes of raising funds.
For any discussion, please feel free to contact:
Ms. Anjali Aggarwal
Corporate Professionals Capital Private Limited
SEBI Registered (Category-I) Merchant Banker
M: +91 9971673336