Sebi eases rights issue norms for fund raising amid coronavirus pandemic

To fast track fund raising through rights issue in the wake of coronavirus pandemic, markets regulator Sebi on Tuesday reduced minimum public holding requirement to Rs 100 crore from Rs 250 crore.

Besides, relaxation has been given with respect to minimum subscription as well as minimum threshold requirement for not filing draft document, the regulator said in a circular.

The relaxations are applicable for right issues that open on or before March 31, 2021.

The eligibility requirement of average market capitalisation of public shareholding of Rs 250 crore has been reduced to Rs 100 crore.

Besides, the requirement related to period of listing of equity shares of the issuer for at least three years has been reduced to eighteen months only.

In addition, condition related to no audit qualifications on issuer's audited accounts has been replaced with the requirement to disclose the impact of audit qualifications on issuer's financials.

Further, certain other eligibility conditions with respect to period of compliance with the provisions of the listing regulations, ongoing action initiated by Sebi against the issuer / promoters / directors and settlement of violation of securities laws have also been relaxed.

To provide greater flexibility in fund raising, the threshold for minimum subscription requirements for a rights issue has been reduced to 75 per cent from 90 per cent of the offer size.

This is subject to certain conditions, including out of the funds raised at least 75 per cent of the issue size will be utilised for the objects of the issue other than general corporate purpose.

To reduce the time involved in fund raising and ease compliance requirements, listed entities raising funds up to Rs 25 crore in a rights issue will not be required to file draft offer document.

The existing threshold in this regard is Rs 10 crore.

These measures are aimed at expanding the universe of listed entities that are eligible for raising funds through fast track rights issuances, reducing the time involved and providing greater flexibility in fund raising, apart from easing compliance requirements.

Sebi, last year, significantly reduce the timeline for the completion of the rights issue from T+ 55 days to T+ 31 days as well as introduced the dematerialization and trading of rights entitlements.

These measures would make the rights issue framework more effective and efficient.

With regard to flexibility on issue size, the regulator said an issuer, whose offer document is pending receipt of Sebi's observation, will be permitted to increase or decrease the fresh issue size by up to 50 per cent of the estimated issue size (instead of the present limit of 20 per cent) without requiring to file fresh draft offer document with the Board.

The relaxation will be applicable for all offer documents pending receipt of Sebi observations up to December 31, 2020.

In respect of validity of observations, it has been decided to extend the validity of Sebi observations on rights issues by six months from the date of expiry for issuers whose observation has expired or shall expire between March 1, 2020 and September 30, 2020.

In the wake of challenges for the Indian economy arising out of the COVID-19 pandemic and with a view to improving access to funding to the corporates through capital markets, Sebi said it has decided to grant these temporary relaxations from the regulatory provisions related to rights issuance by listed entities.