SEBI, recently released a discussion paper titled “Revisiting the capital raising process”, with the primary objective of shortening the timeline for raising capital through an IPO and to relax the eligibility criteria for raising capital through a fast-track FPO or rights issue in order to allow more companies to access these routes of capital raising.
SEBI intends to shorten the existing post-issue timeline from T+12 (“T” being the issue closing date) to T+6 through leveraging the secondary market infrastructure. As of now, retail applications in an IPO can be made through SCSBs (ASBA bids), syndicate members or registered brokers. The discussion paper proposes to allow the submission of ASBA applications through DPs and RTAs. The discussion paper proposes remove physical bid-cum-application forms by providing investors the option to fill and sign forms on digital platforms provided by the broker/SCSB/DP/RTA. This long overdue change is a promising development.
With regard to non-ASBA bids, the discussion paper proposes a faster mechanism to collect the money from investors through a web based electronic transfer platform viz. NACH provided by the National Payments Corporation of India. Although removing physical cheques from the issuance process is a necessary change, making ASBA mandatory may be a better way to achieve the same result. Further, the option for withdrawal of bids after the closure of the issue is proposed to be eliminated and the basis of allotment is proposed to be prepared on T+3 as opposed to T+8.
The eligibility criteria prescribed under ICDR Regulations for raising capital through a fast-track FPO or rights issue has been felt to be very restrictive. The current requirement of average market capitalisation of Rs. 3000 crores would make only 183 companies eligible to raise capital. The discussion paper proposes to lower this threshold to allow more companies to utilise these faster alternatives to raise capital.