SEBI - ICDR Regulations Amendment Of March 2025: Key Changes From Rights Issue Perspective

Key Changes under Rights Issue Amendments 2025

Shift from "disclosures mandated by regulatory requirements" towards "reliance on publicly disseminated information"

1.

No review process, hence, no involvement of SEBI.

i. In accordance with the Rights Issue Amendments 2025, the provisions of 'Chapter III – Rights Issue' of the SEBI ICDR Regulations now apply to all rights issues, regardless of their size. Previously, this chapter was applicable only to issues with a minimum size of INR 500,000,000 (INR 500 million).

ii. Pursuant to the amendments, the requirement to file different documents for different types of rights issues has been removed by SEBI, meaning that there is no longer a distinction in the documentation required for rights issues. To ensure uniformity in the process, SEBI has removed the fast-track eligibility requirements. While some of the eligibility criteria have been done away with entirely, some of the eligibility criteria have been converted into disclosure items in the DLOF and letter of offer (LOF).

iii. The intention of SEBI is to simplify the entire rights issue process by relying on publicly disseminated information. An issuer proposing the rights issue is already listed and thus, obligated to comply with periodic disclosures requirements as specified under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI Listing Regulations) such as corporate governance report, annual report, financial results, disclosure of material events. When it comes to a rights issue, an investor only needs supplementary details to make an informed decision, such as the objects of the issue, price, entitlement ratio, and the participation of the promoters.

iv. The Rights Issue Amendments 2025 have eliminated the necessity of submitting a DLOF to SEBI. Instead, pursuant to the amendments the DLOF can be directly submitted to the stock exchanges to obtain in-principle listing approvals. Issuers are now only required to file the LOF with SEBI for information dissemination purposes.

v. Furthermore, given that the interval between the filing of the DLOF and LOF is merely three working days, the review process by the stock exchanges is expected to be brief.

2.

No need for appointment of merchant bankers.

i. To further simplify the process and with the intention of significantly curtail the overall time taken to complete a rights issue, SEBI has done away with the requirement of appointment of merchant bankers, consequently eliminating the requirement of submitting the due diligence certificate by the merchant bankers.

ii. The other ancillary activities such as selection of other intermediaries, marketing of the issue, availability of issue material, finalisation of basis of allotment, submission of post issue report, are generic in nature and can be performed by the issuer, registrar to the issue, stock exchanges and other market intermediaries. Thus, the issuers now bear the sole responsibility for compliance, due diligence, and execution, thereby reducing external dependencies and associated costs.

iii. Therefore, the role of regulating the issue by issuing observations by SEBI and the role of the merchant bankers to conduct due diligence (amongst other activities) has been done away with, to allow the issuers to make a swift fundraise by disclosing only relevant and rationalised information.

3.

Increased role of the monitoring agency

Pursuant to the amendment, irrespective of the issue size, the issuer is mandated to appoint a monitoring agency. This is a positive step from SEBI considering that the merchant bankers will no longer be conducting due diligence and verifying the details of the objects mentioned in the DLOF and LOF and the stock exchanges have to also grant in-principle approval within three days of filing of the DLOF, therefore making the review process limited.

Thus, monitoring the issue proceeds will be a crucial aspect to ensure an independent check on the use of funds raised.

Rights issue – a preferred mode of fund raising, enabling strategic allocation of capital, and fostering participation from investors

4.

Expansion of renunciation of rights for promoter and promoter group members

i. SEBI with the intent to make rights issue a lucrative mode of fund raising, has introduced the concept of renunciation of rights entitlement by the promoter and the promoter group in favour of "specific investors."

ii. The issuer is obligated to disclose the following details: (a) the names of the specific investor(s); (b) the names of the promoter(s) or promoter group, including the number of rights entitlements that will be renounced in favour of the specific investor(s); (c) whether the issuer plans to allocate any undersubscribed portion of the rights issue to the specific investor(s). Such disclosures are to be included in the DLOF, LOF, and, in advertisements, as applicable, as well. Additionally, the issuer must notify the stock exchanges at least two days before the issue opens.

iii. On the first day of the issue opening, specific investors need to apply before 11:00 am if the promoter or promoter group has given up their rights entitlement for them. The issuer must then report to the stock exchanges by 11:30 am whether these investors have applied.

iv. After submitting their applications based on the renounced rights, specific investors cannot withdraw them.

v. If the issuer wants to allocate any undersubscribed rights issue portions to these investors, they must submit their application and payment before the basis of allotment is determined.

Easing the limitations on the renouncement of rights entitlements for promoters and members of the promoter group, will grant issuers or promoters the flexibility to include certain specific investors as shareholders in the company. This specific allotment may also yield additional advantages, such as providing a safeguard against potential issues, decreasing the need for underwriting, and enabling the issuer to price the rights issue more effectively.

5.

Mode of allotments

SEBI allows the issuer to make allotments as follows:

i. full allotment is made to eligible shareholders in full or in part and also to the renouncers who have applied for the portion renounced in their favour.

ii. allotment to eligible shareholders who have applied for additional specified securities, provided there is under-subscription in (i) above;

iii. allotment to renouncees who have applied for additional specified securities, provided there is under-subscription in (i) and (ii) above;

Now, in case there is an undersubscription under (i), (ii) and (iii) above, then allotment to specific investors can be made from such unsubscribed portion.

However, for making an allotment to a specific investor under Regulation 90(4)(d), the issuer must make a public announcement by naming these specific investors in the advertisement.

Truncated disclosure requirements

6.

Uniform disclosure requirements

Prior to the amendments if the issuer fulfilled the fast-track eligibility requirement an issuer undertook the right issue with limited disclosures in the DLOF and LOF in accordance with Part B of Schedule VI of the SEBI ICDR Regulations.

If such fast-track eligibility requirements were not met, a more detailed disclosure requirements provided under Part B-1 were followed which were similar to extensive disclosures necessary for an initial public offer (IPO) or public offering document.

Now, to ensure uniformity in the process, SEBI has removed the fast-track eligibility requirements and has accordingly done away with the differentiation of Part B and Part B-1 of Schedule VI. Pursuant to the amendment, now an issuer undertaking a rights issue is required to comply with the updated Part-B of Schedule VI of the SEBI ICDR Regulations, thereby ensuring uniform disclosures in both the DLOF and LOF for all rights issues.

7.

Deletion of certain sections from the draft letter of offer and letter of offer leading to a more rationalised disclosure requirement

Due to the publicly disseminated information, SEBI has decided to do away with certain disclosure requirement / sections of the DLOF and LOF. Some of the most important amendments amongst others are mentioned below:

Deletion of the following sections:

i. Management Discussion and Analysis of Financial Position and Results of Operations (MDNA);

ii. Business – requirement for a comprehensive section on the business has been eliminated. The issuer is now required to present only a summary of the business description.

iii. Financial information – requirement include complete set of audited financial statements has been eliminated. However, the DLOF and LOF must include following extract of audited consolidated financial statements that comply with relevant accounting standards for the most recent financial year, along with comparative data from the previous full year. Additionally, any latest limited review financial statements disclosed to the stock exchanges, with comparative figures from the prior year, should also be incorporated. For the limited review period, this information should not be older than six months from the opening date of the issue:

a) Total income from operations

b) Net profit/loss before tax and extraordinary items

c) Net profit/loss after tax and extraordinary items

d) Equity share capital

e) Reserves and surplus

f) Net worth

g) Basic Earnings per share

h) Diluted Earnings per share

i) Return on net worth

j) Net Asset Value per Share

iv. Management - comprehensive disclosures regarding the previous directorships of the directors, as well as information about key managerial personnel and senior management, are no longer necessary.

v. Outstanding legal proceedings – the requirement for a designated section has been removed, but a brief overview of legal proceedings has been included in a tabular format as per the prescribed requirements under the amendments. Furthermore, the issuer is no longer required to reveal matters concerning moral turpitude.

8.

Miscellaneous

i. Apart from the eligibility requirements mentioned under Regulation 61 of the SEBI ICDR Regulations, going forward, issuers will not be eligible to make a rights issue if the equity shares of the issuer are suspended from trading, as a disciplinary measure, as on the reference date.

ii. The obligation to prepare and distribute an abridged letter of offer has been eliminated, instead the issuer is only required to send the LOF to shareholders.

Revised timelines

1.

1^st Board meeting for approval of rights issue

T

(T being the date of Board of Directors of the Issuer approving the Rights Issue)

2.

Notice for 2^nd Board meeting to fix record date, price, entitlement ratio etc. Subject to Board's/ shareholders' approval*

T*

3.

Application by the issuer for seeking in-principle approval along with filing of Draft Letter of Offer with Stock Exchanges

T+1

4.

Receipt of in-principle approval from Stock Exchanges

T+3

5.

2^nd Board meeting for fixing record date, price, entitlement ratio etc.

T+4

6.

Filing of Letter of Offer with Stock Exchanges and SEBI

T+5 to T+7

7.

Record Date

T+8

8.

Receipt of BENPOS on Record date (at the end of the day)

T+8

9.

Credit of Right Entitlements (REs)

T+9

10.

Dispatch / Communication to the shareholders of Letter of Offer

T+10

11.

Publication of advertisement for completion of dispatch

T+11

12.

Publication of advertisement for disclosing details of specific investor(s)

T+11

13.

Issue opening and commencement of trading in Res (Issue to be kept open for minimum 7 days as per Companies Act, 2013)

T+14

14.

Validation of Bids

T+14 to T+20

15.

Closure of REs trading (3 working days prior to issue closure date)

T+17

16.

Closure of off-market transfer of REs

T+19

17.

Issue closure

T+20

*If the Issuer is making a Rights Issue of convertible debt instruments, wherein shareholder's approval is required, then the notice for 2^nd Board meeting to fix record date, price, entitlement ratio etc. would be given on the date of receiving shareholders' approval and the remaining timeline would be adjusted accordingly.

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