Sebi proposes to cut rights issue red tape

In a bid to encourage capital-raising through rights issues, the Securities and Exchange Board of India (Sebi) is proposing to reduce a lot of mandatory disclosures for listed companies.

In a concept paper that seeks public comments before March 28, the regulator said since a lot of information about the listed entities was already available in the public domain, it was not necessary to mandate exhaustive disclosure requirements.

The proposals seek to do away with the non-disclosure of details regarding the company’s business and the basis of issue price, floor price and price band.

“It may suffice to have a more restricted set of disclosures about the issue and the entity. Further, rationalisation of disclosure norms for rights issues would not only make the issuance process faster, but also contribute to savings in paper, printing and distribution costs,” said Sebi in the discussion paper.

According to the Sebi committee on disclosures and accounting standards (Scoda) – since the rights issue is meant for existing investors – details like management, board of directors, corporate structure, industry overview, and future prospects may not be required in the offer document.

Though companies may not need to declare the basis of the issue price and price band – which is a function of parameters like earnings per share, price to earnings ratio and others – a snapshot of the basic accounting ratio will be preferred by the market regulator.

The proposal, however, is not going to be extended to companies that have not come out with any public issue in the last ten years prior to the date of filing the offer document.

“Floating a rights issue has been very cumbersome so far. Since the shareholders already have detailed information about the company, the same information need not be furnished again. We need to simplify all capital-raising plans,” Prithvi Haldea, chairman and managing director, Prime Database, said.

There are other proposals, like allowing the company to provide financial statements for only the previous year and the stub period instead of statements for five years. The stub period financial information is referred to as reporting results for an interim period, subsequent to the last audited statements.

Also, any change in the accounting process in the last three years and its impact on the company’s profit and reserves may not be mandatory any longer.

Further, Scoda has recommended that an issuer be required to disclose only those risk factors that are related to the rights issue, or the issuer’s ongoing business activities and litigations that impacted the business directly. The regulator also proposed that the requirement to disclose size of the issue could be removed as it is disclosed under ‘offering information’.

Even the promoters’ contribution of funds and their deployment in the firm’s business, prior to the issue, could be done away with, the committee added.