SEBI streamlines and simplifies the process of Rights Issue; applicable to all rights issues and fast track rights issue where Letter of Offer (“LoF”) is filed with the stock exchanges on or after 14.02.2020

In a Circular dated 22nd January, 2020, the Securities and Exchange Board of India (“SEBI”) has informed that the process of Rights Issue has been simplified and streamlined in order to make it more efficient and effective.

This circular is applicable for all rights issues and fast track rights issue where Letter of Offer (“LoF”) is filed with the stock exchanges on or after February 14, 2020.

Background:

 

Earlier, in a Press Release dated 20th November, 2019 it was informed that SEBI had taken the decision to review the Rights Issue Process in order to significantly reduce the timeline for completion of rights issue.

Amendments have been made to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”). Accordingly, changes have been made to the Rights Issue Process.

 

Key Highlights:

 

  1. The time period for advance notice to stock exchange(s) under *Regulation 42(2) of LODR Regulations has been reduced to at least 3 working days (excluding the date of intimation and the record date), for the purpose of rights issue.Previously, the time period of notice was 7 working days.

  1. Issuance of newspaper advertisement disclosing date of completion of dispatch and intimation of same to the stock exchanges for dissemination on their websites, must be completed by the issuer at least 2 days before the date of opening of the issue.Previously, the time period for newspaper advertisement had to be completed 3 days prior to the date of opening of the issue.

  1. Introduction of dematerialized Rights Entitlements (REs):

 

As detailed in the trail mail SEBI has newly introduced the system of rights entitlements in dematerialized form. The new system has to be exercised in the manner mentioned below.

  • In the abridged letter of offer, it is the duty of the issuer to disclose the process of credit of rights entitlements in the de-mat account.

  • Rights Entitlements must be credited to the de-mat account of eligible shareholders in dematerialised form.

  • Physical shareholders are required to provide their de-mat account details to the Issuer / Registrar to the Issue for the credit of Rights Entitlement within 2 days before the issue closing date in order to ensure that credit of rights entitlement in the de-mat account takes place at least 1 day before the issue of closing date.

  1. Trading of dematerialized REs on stock exchange platform:

 

The system of trading of dematerialised REs in stock exchange is also a new insertion to the procedure of rights issue.

 

  • Rights Entitlements must be traded on secondary market platform of Stock exchanges, with T+2 rolling settlement, like the equity shares. The said activity must commence along with opening of the issue and must close at least 4 days prior to the closure of the rights issue.

  • Investors holding Rights Entitlements in dematerialized mode will be able to renounce their entitlements by trading on stock exchange platform or off-market transfer.

Such trades will be settled by transferring dematerialized REs through depository mechanism, in the same manner as done for all other types of securities.

  1. Payment mode

 

Payment of all applications for rights issue must be mandatorily made only through Application Supported by Blocked Amount (“ASBA”) facility.

  1. Shareholders will not be allowed to withdraw after the issue closing date.

Please note that the detailed procedure on the simplified Rights Issue process is laid down in Annexure I of the Circular for due compliance. All entities involved in the Rights Issue process must take necessary steps to ensure compliance with the instant circular including the procedures stated at Annexure I of this circular.

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*Regulation 42 (2) of the LODR Regulations states: The listed entity shall give notice in advance of at least seven working days (excluding the date  of  intimation  and  the  record  date)to stock exchange(s)  of  record  date  specifying the purpose of the record date:

Provided that in the case of rights issues, the listed entity shall give notice in advance of at least three working days (excluding the date of intimation and the record date).

Source: Securities and Exchange Board of India

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