Right issue: Right issue is a way by which a company can raise additional capital by giving its existing shareholders the right to subscribe to newly issued shares in proportion to their existing holding instead of going to the public. Right issue gives preference to its existing shareholders when any time company proposes to increase its subscribed capital by the issue of further shares. Which are generally at a discounted price.
Regulatory framework:
- Section 62(1) of Companies Act, 2013 and rules made there under. (For unlisted companies)
- Chapter III of SEBI (ICDR) Regulation, 2018 read with Section 62(1) of Companies Act, 2013 and rules made there under (For listed companies)
Why companies should choose right issue to raise fund?
It goes without saying that CoVID 19 is affecting all the countries of the world very badly. According to International Monetary Fund, world is facing bigger depression than 2008. Indian corporate are also not untouched from negative impact of this Epidemic. This has affected all business activities, Operational revenue has declined, companies are facing liquidity crunch. To revive or stand again companies requires infusing fund or raising capital. In the prevailing situation in country right issue is easiest or appropriate way of raise fund because of following reasons:
- Provide an option to existing public shareholders to subscribe shares at a discounted price.
- Enhance company image in the eye of investors
- Regulation 10 of SEBI(SAST) Regulations provides exemption from open offer.
- No Lock-In requirement as compared to public issue, preferential issue.
- No shareholders approval is required, Board may its own approve the right issue ( Sec 62(1) of Companies Act, 2013).
- Free Pricing (Regulation 73 of ICDR, 2018).
*Temporary relaxation for right issue amid CoVID 19:
- Reduced the minimum subscription requirement from 90 per cent to 75 per cent of the offer through offer document.
- Raise the limit for not filing of offer document with SEBI from Rs. 10 crore to Rs. 25 Crore
- Validity of the SEBI Observation will be extended by 6 months from the date of expiry, if such observation is going to expire between March 01, 2020 to September 30, 2020.
*These temporary relaxation are for the right issues that open on or before March 31, 2021.
Temporary relaxation for fast track right issue amid CoVID 19
- The requirement of being listed on any stock exchange for a period of at least 3 years immediately preceding the reference date has been reduced to 18 months.
- Reduced the eligibility requirement of average market capitalization of public shareholding from Rs 250 crore to Rs 100 crore.
- The requirement of compliance with the equity listing agreement or the Sebi (LODR) Regulations, 2015, as applicable, for a period of at least 3 years has been reduced to 18 months.
- Regulation 99(j) of the SEBI (ICDR) Regulations, 2018
Earlier: The equity shares of the issuer have not been suspended from trading as a disciplinary measure during last 3 years immediately preceding the reference date
Relaxation : The equity shares of the issuer have not been suspended from trading as a disciplinary measure during last 18 months immediately preceding the reference date - Regulation 99(m) of the SEBI (ICDR) Regulations, 2018
Earlier: There are no audit qualifications on the audited accounts of the issuer in respect of those financial years for which such accounts are disclosed in the letter of offer
Relaxation : If there is any audit qualifications, if any, in respect of any of the financial years for which accounts are disclosed in the letter of offer, the issuer shall provide the restated financial statements adjusting for the impact of the audit qualifications
| Particulars | Normal Right Issue | Fast Track Right Issue | |
|---|---|---|---|
| Upto 25 crore* | More than 25 crore | ||
| Requirement of Draft Letter of Offer with SEBI | No | Yes | No |
| SEBI Observation in draft letter of offer | No | Yes | No |
| Draft Letter of offer to be approve by | Stock Exchange(s) | SEBI and Stock Exchange(s) | Stock Exchange(s) |
| SEBI (ICDR), 2018 | N.A | Applicable | Applicable |
* Limit of Rs 25 Crore is applicable only for issue up to March 31, 2021, otherwise this limit is Rs. 10 Crore.
Disclaimer
This article herein is made by CCV is solely for informational purpose and shall not be used to buy or sell or subscribe for securities or other financial instruments. Though this article is based on our understanding or interpretation of law and information obtained from public sources believed to be reliable but non independent verification has been made nor its accuracy or completeness guaranteed. CCV makes no representation as to its accuracy.
