August 20, 2009
To all registered Merchant Bankers
To all registered Bankers to an Issue
To all registered Registrars to issues
Sub.: Amendment to SEBI (DIP) Guidelines, 2000 – Rights Issue Process/ Procedure.
1. In exercise of the powers conferred under Section 11 read with Section 1 1A of the Securities and Exchange Board of India Act, 1992, in order to simplify the rights issue process as well as to make it more efficient and effective, it has been decided to amend the SEBI (Disclosure and Investor Protection) Guidelines, 2000 (hereinafter referred to as “the SEBI (DIP) Guidelines”).
2. The full text of amendments is given in Annexure I and the brief of amendments are as under:
2.1 Rationalisation of rights issue disclosure requirements:
2.1.1 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.
2.1.2 In order to encourage listed companies to look at rights issues as a viable form of capital raising by reducing the overall cost of such issuances and also to make the process of such issues faster, it has been decided to rationalise the disclosure requirements for rights issues.
2.2 Applications Supported by Blocked Amount (ASBA) in rights issues:
2.2.1 SEBI, vide circular dated September 25, 2008, had enabled the facility of
applying in rights issue through ASBA on a pilot basis.
2.2.2 It has now been decided to make ASBA applicable to all rights issues. ASBA will co-exist with the current process, wherein cheque/demand draft is used as a mode of payment. Since the web enabled interface of stock exchanges is now operational for the purpose of acceptance of the rights issue applications, self certified syndicate banks shall upload the application data in to the aforesaid interface of stock exchanges.
2.2.3 All applicants who desire to apply through ASBA should hold shares of the issuer
company in a depository account.
2.2.4 The applicants shall indicate either in (i) in Part A of the composite application form of rights issue or (ii) in the plain paper application, as to whether they desire to avail of the ASBA option.
2.2.5 The ASBA process, from the time of submission of application by the applicants till transfer of shares in the depository account of the investors, as specified for book built public issues, shall be followed in the case of rights issues also. The role and responsibilities of self certified syndicate banks, stock exchanges, registrars and merchant bankers, as enumerated in the ASBA process for book built public issues, shall be applicable mutatis mutandis.
2.3 Utilisation of issue proceeds after finalization of the basis of allotment in the issue:
2.3.1 Clause 8.19 of the SEBI (DIP) Guidelines provides that in a rights issue, the issuer may utilise the issue proceeds collected after satisfying the designated stock exchange that minimum 90% subscription is received. In a public issue, in terms of section 73 of the Companies Act, 1956, the issuer company can access the issue proceeds only after allotment and listing is completed.
2.3.2 SEBI has reduced the time period taken for finalization of basis of allotment in the rights issues to 15 days from the earlier period of 42 days from the date of closure of the issue. In view of this, it has been decided to amend clause 8.19 of the SEBI (DIP) Guidelines to provide that the issuer company can utilize the issue proceeds only after the basis of allotment is finalized.
2.4.1This circular shall be applicable as follows:
a. Amendments in Annexure-1 pertaining to rationalised disclosures for Rights Issues shall be applicable for all rights issues where draft letters of offer are filed with SEBI on or after the date of this circular;
b All other amendments in Annexure-1 shall be applicable to:
i. all rights issues where draft letters of offer are filed with SEBI on or after the date of this circular;
ii.rights issues where draft letters of offer have been filed with SEBI but no observations has been issued on them by SEBI; and
iii. all rights issues where SEBI has issued observations but where the letter of offer is yet to be filed with the designated stock exchanges.
3All registered merchant bankers are advised to ensure compliance with this circular including the amendments contained in Annexure I of this circular.
4. This circular and the entire text of the SEBI (DIP) Guidelines, including the amendments contained in Annexure I of this circular, are available on SEBI website at www.sebi.gov.in under the categories “Legal Framework” and “Issues and Listing”.