NEW DELHI: COMPANIES may soon be able to raise funds swiftly through rights offerings, with the capital market regulator mooting a shorter timeline for the process than initial public offerings (IPOs). The Securities & Exchange Board of India (Sebi) is working on a proposal to make the rights issue process shorter and simpler.
The market regulator has told its Primary Markets Advisory Committee (PMAC) to examine the proposal, according to sources. Recently, Sebi slashed the timeline for a rights issue from 109 days to 43 days. It now wants to crunch the process of a rights offer—both pre- and post-issue. The regulator is keen to shorten the rights time to 7-8 days, the same as in the case of an IPO, where the post-closing timeline is being cut to 7-8 days from 21 days. The electronic process of payment and allotment for IPOs may be replicated in the case of rights offers too.
The Sebi move is aimed making the process attractive for corporates and discourage them from taking the easy route of private placements. The concept of a small declaration—outlining what an issuer plans to do with the funds raised through a rights issue— could be considered instead of a prospectus with detailed disclosures, said a person associated with the exercise.
FAST RIGHTS
Sebi recently cut the time taken for rights issue to 43 days from 109 days earlier
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A small declaration on the use of fund may replace detailed prospectus
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Electronic processing of payment & allotment likely
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Move to encourage cos to prefer rights over private placement
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IPO process post closing may be reduced to 7-8 days from 21 days
No need for additional details
THE rationale is that since the offer has to be made to existing shareholders, the company does not need to provide details that it would have given in its prospectus at the time of IPO and later in the form of annual reports. All it needs to do is to inform its shareholders about its plan for use of funds. The rights issue involves a longdrawn process--about 3-5 months, including the time taken to prepare the offer document-- also because an issue itself is open for a month.
“Having simplified the IPO process, there is now a need to relook at the rights issuance norms to make it easier for companies to raise money from their own shareholders,” said Prime Database managing director Prithvi Haldea.
In a rights offering, a listed company proposes to issue fresh securities to existing shareholders whose names appear on the records on a date fixed by the company, known as the record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. The rights issue route is best suited for companies that seek to raise capital without diluting the stake of existing shareholders unless they do not intend to subscribe to their entitlements.
Rights issue as a fundraising route is making a comeback after remaining dormant for over a decade. With the primary market in doldrums, companies are finding it hard to raise funds from the market. They are now turning to existing investors for funds through rights issues. There is a sharp increase in the number of applications filed with Sebi for rights issues. In 2007, domestic companies mobilised Rs 14,085 crore through rights issues. This includes leading corporate houses like Tatas and Birlas. Now even mid and small companies are taking this route for fund mobilisation. Even promoters prefer this route because they can raise funds without diluting stakes. And the feeling in Sebi is that in this route at least promoters are putting their funds in the company unlike in a follow-on issue.
Indian companies raised over Rs 14,085 crore through various rights issues in 2007, marking the highestever mop-up in a single year, and almost four times more than in 2006. The rights issue of Tata Steel accounted for a significant chunk of the total mobilisation in 2007, helping the year surpass 1992 levels when companies raised Rs 11,311.92 crore through 468 rights issues.
