SEBI may revamp norms to cut rights issue process time to 31 days at next board meet

The Securities and Exchange Board of India (SEBI) may revamp the process for a rights issue in the capital market in the coming board meet scheduled on November 20.

The market regulator may discuss significant reduction in time taken to process a rights issue to 31 days from 55-58 in the current framework.

There is a long pending demand of making the right issue process more effective and easy. As per discussion paper issued in the month of May this year, “Issuers perceive a higher exposure to price risk due to current rights issue process. Investors expect allotment and listing timelines to be shortened”. SEBI wants the pre- and post-issue process to close in less than 31 days to make it more efficient.

SEBI also plans to cut down the notice period under Regulation 42 of LODR to three clear working days from seven working days. The current record date, due to the requirement of seven clear working days’ notice, assuming no holidays other than a weekend, in practice works out to a period of 11 to 13 days.

The requirement to determine the issue price before the record date may continue.

In the current framework, a rights issue process, through the fast track route, typically takes about 55-58 days from the time the company decides to launch the rights issue until listing. This timeline excludes the period taken for completing the letter of offer and any statutory and regulatory approvals. Around 26 days are taken away from the notice of the board meeting to the opening of the rights issue, followed by another at least 15 days but not more than 30 days of issue period (from the opening of the issue to the closing the issue) which is a requirement under the Companies Act 2013 and thereafter, 12 working days [~15 days] for allotment and listing.

SEBI plans to move on to electronic modes of receiving entitlements, processing, payment, and settlement in a rights issue including the use of ASBA (Applications Supported by Blocked Amount) as the payment mode, among others.

"Electronic credit and trading of rights renunciation will make the process of renunciation more transparent and efficient. Payment through ASBA facility is investor-friendly and enables faster completion of the post issue process. As a result of these measures, post issue timeline would be reduced by 11 days".