The following guidelines have been issued by the SEBI in respect of rights issue.
1. SEBI Guidelines regarding Composite issue
When the existing listed companies go in for public issue and right issue, it is called composite issue. But these issues can be made at different prices whereby the company can charge lower premium on right issue than on public issues. However, the Board of Directors should fix the premium in consultation with the lead manager to the issue.
2. SEBI Guidelines regarding Appointment of Merchant Broker
If the value of right issue does not exceed Rs.50 lakhs, the company (listed company) concerned need not appoint merchant broker. If the value exceeds Rs.50 lakhs, the appointment of merchant broker is essential. The merchant broker so appointed will manage the issue.
3. SEBI Guidelines regarding Minimum subscription
The minimum subscription in respect of issue is fixed at 90% of the issue amount. If the company fails to receive minimum subscription, the amount received should be refunded within 128 days.
4. SEBI Guidelines regarding Preferential Allotment
Preferential allotment can be made to promoters, companies, shareholders of those companies, NRIs, employees and associate companies of the same group. Such preferential allotment should be made independent of right issue.
5. SEBI Guidelines regarding Underwriting
Generally, underwriting of right issue is not mandatory. However, under SEBI (Underwriters) Rules and Regulations, 1993, a right issue can be underwritten.
6. SEBI Guidelines regarding Rights of convertible debenture holders
Right issue should not dilute the rights of fully or partly convertible debenture holders. If the conversion of convertible debenture becomes due within 12 months from the date of right issue, necessary reservation should be made in favour of convertible debenture holders.
7. SEBI Guidelines regarding No retention of over subscription
A company cannot retain the amount received by way of over subscription. Further, the amount of right issue cannot exceed the limit as specified in the letter of offer.
8. SEBI Guidelines regarding Letter of offer
After preparing the letter of offer for right issue, the lead manager should obtain SEBI’s clearance for the same. Then, the stock exchange should be approached for fixing the date for the right issue. The letter of offer should be prepared in compliance with the provisions of Companies Act. The basis for fixing the issue price should be justified in the letter of offer.
9. SEBI Guidelines regarding Newspaper advertisement
Listed companies which make right issue should advertise so in at least two leading newspapers. The advertisement should carry details as to the despatch of letters of offer, opening date, closing date for the issue, etc. The advertisement should be issued at least one week before the opening date of subscription list.
10. SEBI Guidelines regarding Submission of compliance report
The lead manager, should within 45 days from the closure of right issue, submit a compliance report along with the compliance certificate issued by a qualified auditor to the SEBI.