Fund Raising-Now Easier

MUMBAI: The Securities and Exchange Board of India (Sebi) is likely to make it easier for more companies to raise money from the stock market, as it looks to relax eligibility rules to help them speedily raise funds from existing shareholders. 

Currently, only companies, which have had a market capitalisation of more than Rs 10,000 crore in the past one year, are eligible for this route. Sebi plans to lower this threshold. 

This has been necessitated by the steep fall in market value of companies across the board because of the bearish grip on the stock market. If the current rule for fast-track rights issuance is to be rigidly enforced, only a few companies will be able to access their investors for funds. 

Sebi is also looking at reducing the issue period for rights issues to 15 days from 30 days now. Bankers say that when the issue remains open for a month in volatile market conditions, it’s vulnerable to market fluctuations. Many investors only subscribe to the issue in the past week, which could make the issue price unattractive in case the stock tumbles. 

In the recent past, rights issues of Tata Motors and Hindalco Industries devolved on merchant bankers after their share fell steeply. Merchant bankers say that globally, issue pricing is done a few days before the issue opens. 

In 2007, Sebi had unveiled norms for fast-track issuance of securities, a simplified process for making public issues. 

However, the new mechanism was allowed only for those companies listed on the BSE or NSE for at least three years and having a market capitalisation of at least Rs 10,000 crore over the past one year. Other stipulations included companies having shares in the dematerialised form and complying with the listing agreement. 

These companies were also eligible for rationalised disclosures as well as simplified procedural requirements. The regulator had made an attempt to save time and cost for such companies. However, only three companies, including SBI, Tata Motors and Hindalco, availed this route. 

Last year, Sebi had announced that the timeline for a rights issue was being reduced from 109 days to 43 days. Sebi will also shortly increase the margin on preferential share warrants issued by companies to promoters to 25% from 10% now. The move is aimed at increasing promoters’ commitment to meet their obligation of pumping funds into the company. 

This was recommended by the primary market advisory committee on Monday after it was observed that often promoters did not pay the balance 90%, as the stock price of their company had tanked significantly.