Faster Rights Issue by Listed Companies: SEBI Overhauls Rights Issue Framework

Securities and Exchange Board of India (SEBI) has introduced significant changes to the existing rights issue framework vide amendments dated March 3, 2025 introduced to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations, which amendments can be viewed by clicking on this link), along with a circular dated March 11, 2025 (Circular, which can be viewed by clicking on this link), which revised the timelines for completion of the rights issue process by listed Indian companies (collectively, ‘Amendments’).

 

These Amendments have been introduced in the backdrop of a SEBI consultation paper dated August 20, 2024 titled ‘Faster Rights Issue with Flexibility of Allotment to Selective Investors’ (Consultation Paper), which proposed significant changes to Chapter III of the ICDR Regulations that provides the regulatory framework for a listed company offering specified securities of aggregate value of INR 500 million or more, by way of a rights issue. The Amendments have been introduced with the objective of streamlining the rights issue process, enhancing the efficiency of capital raising by listed companies and making rights issue the preferred mode of raising funds compared to preferential issuances. The specific changes introduced by SEBI under the Amendments, in the context of rights issue, are inter alia as follows:

 

1. Shift from Regulatory Disclosures to Public Information Reliance

The Amendments represent a significant shift in approach to ‘reliance on publicly disseminated information’ by materially reducing the disclosures required to be made by an issuer under a Draft Letter of Offer (DLOF) or Letter of Offer (LOF). The disclosure requirements have been streamlined by removing several sections from the DLOF and LOF, including the Management Discussion and Analysis (MD&A), detailed business section, complete financial statements, management information, and comprehensive details vis-à-vis legal proceedings. These are replaced with summaries or key indicators replaced (e.g., net worth, EPS, return on net worth) where necessary.

The change acknowledges that issuers proposing rights issues are already listed entities subject to periodic disclosure requirements under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) and key corporate and financial information – such as financial results, governance reports, and material event disclosure – continue to be available in the public domain, requiring only supplementary issue-specific disclosures at the time of undertaking a rights issue. This will help in greatly reducing the compliance burden on listed issuers.

2. Elimination of SEBI Review Process

The Amendments have unified the regulatory framework under ICDR Regulations to all types of rights issues, irrespective of their size, eliminating the previous INR 500 million threshold. Notably, SEBI has removed the requirement to file the DLOF with SEBI for review. Instead, issuers can now directly submit the DLOF to stock exchanges for in-principle listing approval and are only required to file the LOF with SEBI for information dissemination purposes. This change significantly reduces regulatory review timelines, as stock exchanges are expected to complete their review within 3 (three) working days.

3. Revised timelines for Faster Rights Issue

Pursuant to the amended Regulation 85 of ICDR Regulations, rights issues shall now be completed within 23 (twenty-three) working days from the date of board approval as per the prescribed timelines (see table below), which significantly crunches the period from board approval to issue closure to just 20 (twenty) working days. Further, post-issue closure activities have also been streamlined, with listing and commencement of trading in rights shares expected within 3 (three) working days after issue closure, ensuring quick liquidity for investors. The revised timelines in relation to completion of a rights issue are as follows:

Sr. No.	Broad Activities Performed During Rights Issue Process	Timelines (Working Days)
1	1st Board meeting for approval of rights issue	T (T being the date when board of directors of the listed company approve the rights issue)
2	Notice for 2nd Board meeting to fix record date, price, entitlement ratio, etc.	T (If the listed company is making a rights issue of convertible debt instruments, wherein shareholder’s approval is required, then the notice for 2nd 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.)
3	Application by the issuer for seeking in-principle approval along with filing of DLOF with Stock Exchanges	T+1
4	Receipt of in-principle approval from Stock Exchanges	T+3
5	2nd Board meeting for fixing record date, price, entitlement ratio, etc.	T+4
6	Filing of LOF 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 LOF	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

 

4. Removal of Merchant Banker Requirement and Enhanced Role of Monitoring Agency

The mandatory appointment of merchant bankers for rights issues has been eliminated, along with the requirement for obtaining due diligence certificates. Issuers now bear sole responsibility for compliance, due diligence, and execution of the rights issue process, reducing external dependencies and associated costs. However, to balance reduced regulatory oversight, SEBI has mandated the appointment of a monitoring agency for overseeing use of process to all rights issues (regardless of size). This ensures independent verification of fund utilization in the absence of merchant banker due diligence and expedited regulatory reviews.

5. Expanded Flexibility for Promoter Renunciation

The Amendments permit renunciation of rights entitlements by promoters and promoter group members in favor of ‘specific investors’. Issuers must upfront disclose through appropriate advertisements the identities of these investors, the promoters renouncing rights, the number of rights being renounced, and whether undersubscribed portions will be allocated to these investors. To protect interest of investors, it has been mandated that the ‘specific investors’ would be required to make an application on the first day of issue opening period and they will not be allowed to withdraw such applications.

In sum, the streamlining of processes, reduction in documentation requirements, and reliance on publicly available information are certainly positive steps toward enhancing the efficiency and attractiveness of rights issues for listed companies.