Proposed amendments to Companies Act may include easier rights issue norms

Proposed amendments to the Companies Act are said to reportedly facilitate easier norms for fund-raising through the use of rights issues. The move comes even as the use of the route has seen record amounts raised during the financial year.

The total amount of money raised through the route is Rs 52,002 crore. This is the highest since at least 1990-91, shows data from primary market tracker Prime Database. The previous high was reached in 2007-08, when companies had raised Rs 32,519 crore.

A rights issue is when a company looks to raise more money by approaching its own shareholders. The number of such issuances had peaked in the early nineties. There were a record 488 issuances by companies looking to raise capital from shareholders in 1992-93. This only raised Rs 12,630 crore at the time.

There have only been ten issuances so far in 2019-20. The quantum has been significantly higher this year, leading to a record amount being raised. 

Telecom companies Vodafone Idea and Bharti Airtel both raised Rs 25,000 crore through a rights issue earlier this year. Telcos have been dealing with issues related to high debt and increased competition.

A panel on changes to the Companies Act has suggested easier norms for rights issues. It has suggested reducing timelines for rights issues so that companies can raise their required capital faster. 

Ajay Tyagi, chairman of the Securities and Exchange Board of India, had also said earlier this month that the stock market regulator is looking at easier rights issue norms.  

The panel which suggested the changes has also said qualified institutional placement requirements can be made easier. Other suggestions include decriminalising provisions of the law as well as lowering penalties. A re-look at corporate social responsibility (CSR) provisions was also part of the report submitted by the eleven-member committee on Monday to finance minister Nirmala Sitharaman.

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