Rights issue to be faster from today; process to be completed in 23 days

In the consultation paper dated August 20, 2024, the regulator explained why it was considering reviewing the rights issue process.

Rights issue process will be simplified from today, with SEBI's direction on completing the issue faster coming into force.

With this, rights issue will need to be completed in 23 days, which is significantly lower than the earlier time period of 45 days. The timeline is measured from when the approval for the rights issue is given by the company's board.

On March 11, the Securities and Exchange Board of India (SEBI) issued a circular announcing the amendment made to SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2025. The provisions of the circular were to come into effect from April 7.

The market regulator had suggested various amendments to make rights issue more attractive than preferential allotment for listed entities. In rights issue, the existing shareholders can participate, while in preferential allotment, the issuer can allot it to selective investors including third-parties/outsiders.

Makarand M Joshi, founder partner MMJC and Associates, a corporate compliance firm said, "Under the old timeline funds raised through preferential allotment during 22-23 and 23-24 were Rs 83,832 crores and Rs 45,115 crores. During same time (i.e. FY 23 and FY 24) funds raised through right issue were Rs 6,751 crores and Rs 15,110 crores (SEBI annual report 2024.) Hence it is seen preferential allotment was preferred way of fundraising."

He added, "Now it needs to be seen if the rights issue would be a preferred way of raising funds as compared to preferential allotment as per revised timeline."

In the consultation paper dated August 20, 2024, the regulator explained why it was considering reviewing the rights issue process.

The paper said, ".Despite apparent benefits associated with the Rights Issue viz. tradability of rights entitlement, proportional treatment for existing shareholders, it is observed that Rights Issue is still not a preferred mode of fund raising."

Therefore, it added, to make rights issue a preferred mode of fund raising, the regulator undertook a review of the existing framework, including reducing the timeline for the process to 23 days.