To streamline the process and reduce the time taken for rights issues by companies, SEBI on January 22 cut down the period for advance notice given to stock exchanges to three days from the current seven days. The regulator said it has simplified the rights issue process to make it more efficient and effective.
Under the new framework, the period for advance notice to stock exchange has been reduced from at least seven working days to at least three working days (excluding the date of intimation and the record date), for the purpose of rights issue.
Besides, the regulator said that issuance of newspaper advertisement disclosing date of completion of dispatch and intimation of same to the exchanges for dissemination on their websites, will be completed at least two days before the date of opening of the issue.
The new framework will be applicable for all rights issues and fast track rights issue where the papers have been filed with the stock exchanges on or after February 14.
SEBI said applications for a right issue will be only through ASBA facility as a payment mode, which is investor friendly and enables faster completion of the post issue process. A shareholder is not allowed to withdraw application after the closing date of the issue.
The markets watchdog had come out with a discussion paper in May 2019, under which it had proposed to reduce the overall time taken for rights issue to around 31 days as well as make the application and allotment process more efficient.
Currently, rights issue process takes 55-58 days from the time a company decides to launch the issue till listing.
In addition, it had proposed to eliminate the requirement of giving newspaper advertisement and replacing it with intimation to the shareholders through the stock exchanges and e-mail.
Under the new process, SEBI said rights entitlements (REs) will be credited to the demat account of shareholders in dematerialised form.
"In the letter of offer and the abridged letter of offer, the issuer need to disclose the process of credit of REs in the demat account and renunciation thereof," it added.
In the process, the REs with a separate ISIN (International Securities Identification Numbers) shall be credited to the demat account of the shareholders before the date of opening of the issue, against the shares held by them as on the record date.
ISIN are used to number specific securities.
Physical shareholders shall be required to provide their demat account details to issuer for credit of REs within two working days prior to the issue closing date, such that credit of REs in their demat account takes place at least one day before the closing date.
With regard to trading of dematerialised REs on stock exchange platform, SEBI said such REs will be traded on secondary market platform of exchanges, with T+2 rolling settlement, similar to the equity shares.
Trading in REs on the secondary market platform of stock exchanges will begin along with the opening of the issue and will be closed at least four days prior to the closure of the rights issue.
"Investors holding REs in dematerialized mode shall be able to renounce their entitlements by trading on stock exchange platform or off-market transfer. Such trades will be settled by transferring dematerialised REs through depository mechanism, in the same manner as done for all other types of securities," SEBI noted.
In respect of allotment process, SEBI said after reconciliation of valid ASBA applications, funds blocked and REs demat holding list, the registrar will have to finalise allocation of securities offered through rights offering. "Registrar shall credit the shares to the respective demat accounts of the applicants based on basis of allotment approved by the designated stock exchange and shall issue instructions to unblock bank accounts wherever necessary," it added.