RIGHTS ISSUE (Adhikar shares)

Right share in common parlance,– Shares issue to existing shareholders by company, called right shares.

According to section 62(1), shares issue to existing shares holder in the proportion to existing shareholder hold the shares in the company.

Unless otherwise provided, SEBI (ICDR) Regulations,2018 shall apply to a rights issue by a listed issuer, where the aggregate value of the issue is 50 Cr. or more.

However, in case of rights issue of size less then 50cr, the issuer shall prepare the letter of offer in accordance with requirements a specified in SEBI (ICDR) Regulations,2018 and file the same with SEBI information and dissemination on SEBI’s website.

Eligibility for issue of right share for listed entity

An issuer shall not be eligible to make a rights issue of specified securities.

  • If the issuer, any of its promoters, promoter group or directors of the issuer are debarred from accessing the capital market by SEBI;
  • If any of the promoters or directors of the issuer is a promoter or director of any other company which is debarred from accessing the capital market by SEBI;
  • If any of its promoters or directors is a fugitive economic offender.

Issue of right issue according to ICDR, 2018

General Conditions for issue of right shares for listed entity

The issuer making a rights issue of specified securities shall ensure that,

  • It has made an application to one or more stock exchanges to seek an in-principle approval for listing of its specified securities on such stock exchanges and has chosen one of them as the designated stock exchange,
  • All its existing partly paid-up equity shares have either been fully paid up or have been forfeited and
  • It has made firm arrangements of finance through verifiable means towards seventy-five per cent of the stated means of finance for the specific project proposed to be funded from issue proceeds, excluding the amount to be raised through the proposed rights issue or through existing identifiable internal accruals.

The amount for general corporate purposes, as mentioned in the object of the issue in the draft letter of offer and the letter of offer, shall not exceed twenty per cent of the amount raised by the issuer.

Where the issuer or any of its promoters or directors is a willful defaulter, the promoters or promoter group of the issuer shall not renounce their rights except to the extent of renunciation within the promoter group.

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