Sebi extends primary market reforms to rights issues also

Application Supported against Blocked Amount system kicks off with Tata Motors.

The Securities and Exchange Board of India (Sebi) has expanded the horizon of reforms in the primary capital market by launching a pilot project to apply the Application Supported against Blocked Amount (Asba) system in case of rights issues also. So far, Asba was applicable to initial public offerings (IPOs), and that too only for retail investors.

In the pilot project, Asba will be applied to rights issues of Tata Motors and Sadhana Nitro Chem, which are opening on September 29.

With the launch of on Thursday pilot project, Sebi is testing the waters for extending Asba to all shareholders, including institutional investors, of the issuer company on record date. If this project proves to be a success, then in the next stage, the regulator may make it mandatory for institutional investors to make 100 per cent payment at the time of applying for IPOs.

Shareholders of companies will now be able to apply by selecting the Asba option in Part-A of the application form for rights issues. These applications will be made to Self-Certified Syndicate Banks (SCSBs) with whom bank accounts to be blocked are maintained. SCSBs shall then block the application money on the basis of an authorisation given by the account holder in the application.

“The application data captured by SCSBs shall be made available to Registrars on a regular basis, through the modus operandi/procedures mutually agreed and tested by the Registrars and SCSBs, till a web-enabled interface is provided by Stock Exchanges to accept rights issue application data from SCSBs,” Sebi said.

Registrars will take into consideration the specific provisions/requirements of a rights issue and give suitable instructions to SCSBs for transfer of money to the issuer’s account. SCSBs will do this after satisfying the designated stock exchange about the receipt of the minimum subscription of 90 per cent as per Sebi (DIP) guidelines. The application money will remain blocked in the accounts of the applicants till SCSBs are instructed by Registrars to release of funds.

Registrars will validate the applications and finalise the basis of allotment.