In a notification aimed at fine-tuning the fund-raising process of companies, market regulator SEBI on Thursday asked companies to utilise the proceeds from rights issues only after allotment of shares to applicants. The regulator has also trimmed the period of a rights issue to 15 days from the current 42 days while extending the application supported by blocked amount (ASBA) facility to rights issues.
So far, companies have been using the rights issue proceeds after satisfying the stock exchange that 90% of the issue was subscribed. The restriction to use the issue proceeds, after allotment and listing is completed, was limited to only in public issues. SEBI also made the ASBA route - where money does not leave the applicant's account when he applies for shares in share issue - applicable to rights issue. Last year in September, the regulator had enabled the facility of applying in rights issue through ASBA on a pilot basis. "All applicants who desire to apply through ASBA should hold shares of the issuer company in a depository account," SEBI said in a circular. SEBI has also rationalised the disclosure requirements for rights issues, in a bid to encourage corporates to opt for rights issues as a viable form of capital raising by reducing the overall cost of such issuances. "Rights issues are further issuances of capital made by listed entities to existing shareholders. These shareholders are generally in possession of basic information about the issuer company and are generally updated on major developments in the company on a continuous basis," SEBI said in its circular. The reduction in timeline approved for rights issues by SEBI in 2008, included bringing down the number of days for the notice period for a board meeting from seven days to two working days; the notice period for record date reduced from 15/21/30 days to seven working days for all scrips; issue period reduced from minimum 30 days to a minimum of 15 days with a maximum of 30 days; and the time for completion of post-issue activity reduced from 42 days to 15 days.
