Proposed rights issue norms make sense

Proposed rights issue norms make sense

It is welcome that capital markets regulator Sebi has proactively liberalised rights issue norms — twice — this year, to make fundraising easier, faster and cost-effective during the pandemic and beyond.

It has duly rationalised eligibility criteria and disclosure requirements for companies to raise capital to fast-forward recovery.

We indeed have an efficient market for equities; the way ahead, surely, is to policy-induce an active and vibrant market for corporate bonds, for transparent debt funding of long-gestation projects.

Sebi has now changed the long-standing minimum subscription requirement in rights issues. Henceforth, the 90% minimum subscription would not be applicable (conditions apply), provided the promoters and promoter group of the issuer undertake to subscribe fully to their portion of rights entitlement.

Note that, in most cases, promoters do commit to subscribe to additional rights in case there is under-subscription; it does raise underwriting and attendant costs.

The minimum subscription requirement for a rights issue to be considered successful has now been relaxed to 75%, with conditions.

A company that has been listed for 18 months, down from three years earlier, can raise funds by way of a rights issue. Further, the eligibility criteria of average market capitalisation of public shareholding of the issuer has been relaxed to `100 crore from `250 crore.

A company can fast-track a rights issue in response to, say, adjudication, legal orders and audit qualifications.

Truncated disclosures are also okay, provided the company has been filing reports and complying with listing requirements for the last one year, instead of three years, as earlier, which, again, is sensible. The new norms, on the whole, make sense.