Understanding SEBI’s updated rights issue regulations

Learn how SEBI’s new rights issue framework simplifies fundraising, empowers investors, and enhances market efficiency in India’s capital markets.

Key takeaways

Rights issue allows existing shareholders to buy additional shares at a fixed price to avoid dilution.
SEBI’s new framework mandates completion of rights issues within 23 working days (earlier 4–6 months).
Share allotment and bid validation processes are now fully automated.
Only a concise Letter of Offer is required; no need for a draft version.
Merchant banker involvement is no longer mandatory.
Promoters can allocate unsubscribed shares to specific or anchor investors.
Disclosures are now focused on key information like price, record date, and entitlement ratio.
Companies benefit from reduced costs, documentation, and easier compliance.
Investors get faster access to discounted shares and improved transparency.
The framework encourages more SME participation and strengthens market efficiency and capital mobilization.
Challenges include reduced financial disclosure depth and ambiguity in certain entitlement scenarios.
If not going through a merchant banker, companies will have to manage coordination and compliance independently.

SEBI’s new Rights Issue framework could redefine how companies approach fundraising—making it faster, more efficient, and better aligned with investor expectations.

Gigy Mathew

Director, Merchant Banking, Strategy and Transactions, EY India

For your convenience, a full text transcript of this podcast is available on the link below:

Pallavi: Hello and welcome to the India Insights Podcast. I'm your host, Pallavi, and today we are diving into a topic that's extremely relevant for companies and investors in today's capital markets, the evolving landscape of rights issues.

Joining me for this insightful discussion is Gigy Mathew, Director in Transactions and Corporate Finance team at EY India. Gigy brings extensive experience in equity markets, fundraising strategies and regulatory frameworks.

Welcome to the podcast Gigy. It's great to have you with us here today.

Gigy Mathew: Thanks, Pallavi. It's a pleasure to be here.

Pallavi: Gigy, beginning with the very basics question. Could you briefly explain what a rights issue is, and why is it so significant for investors?

Gigy Mathew: Certainly, Pallavi. A rights issue is when a listed company offers its existing shareholders the opportunity to purchase additional shares at a given price before those shares are available to the public. This allows investors to maintain their percentage of ownership and avoid dilution. It's significant because it enables current shareholders to participate in the company's growth at a discounted rate, while preventing loss of control when new shares are issued.

Pallavi: Thank you, Gigy. According to you, what are the key changes introduced in the new Rights Issues framework?

Gigy Mathew: So this recent framework brings in several key changes that aim to simplify and strengthen the rights issue process. There are six of them. Let's walk through each of them briefly.

Speedy timeline: Rights issues now must be completed within 23 working days of receiving the board approval, as compared to the previous timelines of 4–6 months.
Automation: The share allotment and bid validation processes are now fully automated by exchanges and depositories, thereby reducing manual errors.
Simplified documentation: Filing of the Draft Letter of Offer (DLOO) with SEBI for its approval is now eliminated; only a concise Letter of Offer is required to be filed with SEBI.
Rights entitlement transfer flexibility for promoters: Promoters can now transfer their rights entitlements (RE) to chosen investors if it is disclosed in advance. This gives more flexibility in raising funds, as promoters can bring in specific investors. Also, applications from these investors cannot be withdrawn, which adds certainty to the whole process of fund raising.
Selective allotment in under-subscribed issues: Under the new rights issue rules, companies can allot unsubscribed shares to select investors at the same issue price. This helps deal with under-subscription and makes rights issues more attractive as a whole fundraising method.
No mandatory merchant banker: The requirement for merchant bankers to manage rights issues has now been removed by SEBI.

Pallavi: Thank you. How does the updated framework simplify the process for companies while also empowering the investors?

Gigy Mathew: Firstly, for companies, the revised 23-day timeline really helps reduce the administrative load and the overall cost. With more automation, there is less manual work and paperwork, which means greater clarity and efficiency, plus the option to allocate unsubscribed shares to specific investors makes it easier to manage under-subscriptions more effectively. And for investors, the automated bid validation process reduces the chances of errors, making participation smoother.

Greater transparency in allocation and disclosures also builds trust. And most importantly, shareholders can quickly take advantage of discounted offers without any delay or confusion.

Pallavi: Thank you, Gigy. Talking about the challenges, according to you, what are the challenges or limitations that companies and investors should bear in mind with respect to the updated rights issue framework?

Gigy Mathew: Let's understand some of the possible limitations of the framework.

Firstly, operational readiness. The company should be ready to launch the offer on the board approval date in all respects. The short 23-day timeline demands tight coordination between stock exchanges, the registrar and transfer agents and company teams. Any delay can affect the issue outcome.

Secondly, disclosure discipline. More flexibility means a greater responsibility to provide clear, timely and accurate disclosures, especially when opting for the rights issue entitlement transfers and selective allotment.

Thirdly, investor participation mechanics. Ambiguities remain in scenarios involving both pronounced entitlement undersubscribed shares, especially if single investor applies in both the categories.

Lastly, execution complexities. With no merchant bankers, companies must carefully manage preparatory steps well before board approval, and shall also carefully manage the coordination with stock exchanges, registers and the depositories to ensure compliance.

Any missteps may trigger delays or rejection.

Pallavi: Thank you, Gigy. And one last question to you. How do you see this framework impacting the larger Indian financial ecosystem in the long run?

Gigy Mathew: In the long run, this revised rights issue framework is likely to have a very positive impact in India's financial ecosystem. The revised framework should encourage rights issuances by lowering time, cost and complexity. More companies, especially SMEs, may prefer to go through rights issues over other fundraising rules. This new framework should also enhance market efficiency. Automation and transparency can nurture investor confidence, leading to stronger participation and improved capital market dynamics.

It shall boost dynamic fundraising as well. Companies will use rights issues more strategically to capitalize on favorable market conditions. This could reduce dependance on debt, promoting healthier balance sheets and broader equity participation. A more dynamic rights social capital market could also deepen India's equity culture, encouraging more companies to go public and more citizens to invest further. It shall support broader capital market structuring. Also, the framework contributes to more robust Indian financial ecosystem by facilitating faster capital mobilization, better corporate governance and more engaged investment base.

Overall, this is a step forward in making India's capital market more inclusive, agile, robust, and it's a foundation that could support long-term and sustainable growth.

Pallavi: Thank you so much, Gigy, for those valuable insights. It's clear that rights issues are evolving. And this particular new framework has the potential to transform the way companies raise capital and how investors interact with these opportunities.

Gigy Mathew: Thank you so much, Pallavi. It was a pleasure discussing this with you today.

Pallavi: Thank you. And to all our listeners, thank you for tuning in for the EY India Insights podcast. Don't forget to subscribe and follow us for more conversation on trends shaping businesses and finance.

Until next time. This is Pallavi signing off.

Presenters

Gigy Mathew
Director, Merchant Banking, Strategy and Transactions, EY India

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Podcast

Duration

7m 54s

How new Rights Issue framework simplify processes and empower investors

SEBI’s new Rights Issue norms cut timelines, boost transparency and enable investor participation through greater automation.

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