Sebi Releases New Framework To Make Rights Issue Process Faster - Check Details

The Securities and Exchange Board of India (Sebi) has released a new framework to enable companies to complete Rights Issues faster. The market regulator released the new framework earlier on March 11.

Companies use rights issues to raise funds by offering existing shareholders an opportunity to buy additional shares of the company at a discount. Such issues are typically carried out to raise money for expanding operations, reducing debt or investing in new projects.

As per the circular, Sebi has made it mandatory for companies to complete their Rights Issue within 23 working days from the date of Board of Directors of the Issuer approving the Rights Issue.

“As part of the new framework, in terms of amended Regulation 85 of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (SEBI ICDR Regulations), it is being specified that Rights Issues Shall be completed within 23 working days from the date of Board of Directors of the Issuer approving the Rights Issue,” Sebi said.

The market regulator also said in the circular that the minimum period for which a Rights Issue can be kept open will be seven days and the maximum period for a Rights Issue will be thirty days.

“In terms of Regulation 87 of SEBI ICDR Regulations and in view of the revised timelines, it is being specified that Rights Issue shall be kept open for subscription for a minimum period of seven days and for a maximum period of thirty days,” Sebi said.

As per the circular, the new framework will be applicable from April 7, 2025. Sebi added that for companies announcing a rights issue of convertible debt instruments, wherein shareholder’s approval is required, the notice for the second board meeting for fixing the record date, price, entitlement ratio etc. would be fixed on the date the company receives the shareholders’ approval. Notably, the timeline for the issue will be adjusted accordingly.

The Sebi urged stock exchanges and depositories to carry out the validation of application bids received in the Rights Issue and for finalising the basis of allotment along with the registrar for the issue. The market regulator also said that stock exchanges and depositories will have to develop a system for automated validation of applications by the investors within a period of six months from the date of applicability of the circular.

Additionally, the market regulator directed stock exchanges and depositories to bring the contents of the circular to the notice of all the stakeholders and to make consequential changes, to their bylaws, rules and regulations.

Prior to the introduction of the new framework, the Rights Issue process typically took 50-60 days, during which companies would have to perform the due diligence process for the preparation of a Draft Letter of Offer (DLoF). Earlier in August 2024, the Sebi had sought suggestions for reducing the timelines for Rights Issues via a consultation paper.

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