1. Introduction

Entities proposing to undertake a rights issue (Issuer) are required to adhere to certain requirements specified by the Securities and Exchange Board of India (SEBI) under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations). SEBI has introduced one-time relaxations from the strict enforcement of certain regulations of the ICDR Regulations related to rights issue.

2. Relaxations in relation to Rights Issue

SEBI has introduced the following relaxations for rights issue that open on or before 31 July 2020:

S. No.

Particulars

Previous Requirement

Relaxation Introduced

1.

Despatch of Documents to Shareholders

Abridged letter of offer along with application form and other issue material (Documents) are to be sent to shareholders three days prior to opening of the issue by registered post or speed post or courier services or electronic transmission.

While the Documents can be sent to shareholders through the existing mode of electronic transmission, SEBI has clarified that any failure to send Documents by registered post or speed post or courier services will not be considered as non-compliance.

 

 

 

The letter of offer, abridged letter of offer and application forms are to be published on the websites of the Issuer, registrar, stock exchanges and lead managers. Additional means such as SMS or audio-visual advertisement on television or digital advertisement or ordinary post should be opted by the Issuer and the lead managers to reach out to the shareholders.

2.

Issue-related Advertisements

-

The rights issue advertisement must also (i) include additional details on how shareholders who have not been served notice electronically can apply, and (ii) be published on websites of the Issuer, registrar, stock exchanges and lead managers.

3.

Rights Entitlements

Physical shareholders must provide their demat account details to the Issuer/registrar to the issue for credit of rights entitlements (REs).

Physical shareholders (who have been unable to open a demat account or are unable to communicate their demat details to the Issuer/registrar to the issue) may still apply for credit of REs subject to the following conditions; (i) the Issuer, along with other intermediaries, will institute a mechanism allowing physical shareholders to apply and communicate the mechanism to shareholders before the issue opens, (ii) physical shareholders will not be eligible to renounce their RE, and (iii) physical shareholders will receive shares only in demat mode.

4.

Application for Rights Issue

Application for rights issue can be made through ASBA facility only.

The Issuer, along with other intermediaries, can now institute an optional mechanism (non-cash mode only) to accept applications of the shareholders.

3. Alternate Mechanisms - REs and Rights Issue

The mechanisms that may be instituted for REs and rights issue are subject to the Issuer and lead managers ensuring that:

(a) The mechanism is only optional and does not replace the existing process;

(b) The mechanism is transparent, robust and has adequate checks and balances;

(c) An FAQ, online dedicated investor helpdesk and helpline is created to guide investors; and

(d) The Issuer, along with lead managers, registrar and other intermediaries, are responsible for all investor complaints.

4. Additional Relaxations for offer documents filed on or before 31 July 2020

(a) Digital signature certifications can be used for all authentication/certification/undertakings relating to the offer documents; and

(b) The Issuer, along with the lead managers, must put in place procedure for inspection of material documents electronically.

Originally published Trilegal, May 2020

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