The upcoming Tata Motors rights issue will be the first in the country where existing investors will have to commit funds as soon as they apply for shares. Investment banks and other financial entities–qualified institutional investors?must also block funds upfront if they apply, following market regulator Sebi?s decision to make the Tata Motors issue a pilot case for the Applications Supported by Blocked Amount (Asba) concept.
The plan aims to strengthen the primary market for shares, as large investors will be more circumspect in their applications, choosing their offers carefully. This, in turn, will improve price discovery. Sebi rolled out the scheme for initial and follow-on public offers on July 30. The pilot scheme for rights issues will cover Tata Motors and Sadhana Nitro Chem, which are both opening on September 29, 2008.
The Rs 4,200-crore Tata Motors issue is unique in more ways than one. It will also be one of the first differential voting rights issues on Sebi?s fast-track clearance route. This route allows established listed companies to complete the offer process quicker as they do not have to go through a lengthy process of filing several documents. ?Asba will also be available for differential voting rights applications as well,? said a Sebi spokesperson.
In its circular released on Thursday, Sebi said this facility for rights issues will be available to all shareholders of the issuer company on the record date. ?This means even institutions will be able to participate through the Asba route,? the circular stated. Application money for the rights issue will remain in the investor?s bank account and will be debited only when shares have been issued.
The regulator also mentions that the ?Asba facility will not be available to non-shareholders. It will coexist with the current process wherein a cheque or demand draft is used as the mode of payment?.
Sebi has advised merchant bankers, registrars and self-certified syndicate banks (SCSBs) to provide the Asba facility for rights issues with suitable modifications to the process specified for public issues through the book-built route. Only an individual holding dematerialised shares and applying through a bank account maintained with SCSBs is eligible.
The SCSB will then block in the account the money specified in the application. ?The application data captured by the SCSB shall be made available to the registrar on a regular basis through procedures mutually agreed (upon) by the registrar and SCSBs until a Web-enabled interface provided by SEs is facilitated to accept the rights issue application data from SCSBs,? Sebi said.
Sebi said registrars must take into consideration the specific provisions or requirements of a rights issue and give suitable instructions to the SCSBs for the transfer of money to the issuer account after satisfying the designated stock exchange about the receipt of a minimum 90% subscription.