No identifiable promoters/group, no twin conditions for exemption from minimum subscription: SEBI
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- Last Updated on 17 February, 2023
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SEBI Informal Guidance No. SEBI/HO/CFD/PoD2/0W/P/2023/5822/1, Dated 10.02.2023
Query raised by the Applicant Company
The Applicant Company sought an informal guidance on whether any relaxation is available to a professionally managed listed company in India without any identifiable promoter/promoter group proposing a right issue with respect to minimum subscription requirement under regulation 86 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.
Regulatory provisions governing minimum subscription in rights issue
Regulation 86(1) of SEBI (ICDR) Regulations, 2018 deals with the minimum subscription in a right issue, which is reproduced as below –
The minimum subscription to be received in the issue shall be at least 90% of the offer through the offer document. Provided that minimum subscription criteria shall not be applicable to an issuer if –
(a) The object of issue involves financing other than financing of capital expenditure for a project; and
(b) The promoters and the promoter group of the issuer undertake to subscribe fully to their portion of rights entitlement and do not renounce their rights except to the extent of renunciation within the promoter group.
SEBI’s observation
From the above definition, SEBI observed that for an exemption from the minimum subscription requirement under regulation 86 of the SEBI (ICDR) Regulations, 2018, the twin conditions of proviso to the aforesaid regulation are required to be met. However, for a professionally managed listed company without identifiable promoters/promoter group, compliance with the second condition to the proviso to regulation 86(1) is not possible.
In such case, compliance with the first condition of the proviso shall be considered as sufficient compliance for getting an exemption from the minimum subscription requirement under the Rights Issue.
SEBI’s reply & conclusion
The SEBI, vide its informal guidance, has clarified that a professionally managed listed company raising funds via right issue for the purpose of financing other than financing of the capital expenditure shall be exempt from the minimum subscription criteria under Regulation 86(1) of SEBI ICDR Regulations,2018. The condition of availing exemption that promoters/promoters group undertakes to subscribe their portion of right issue shall not apply as there are no identifiable promoters/promoters group.
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