MUMBAI: Listed Indian companies with a relatively low public float may soon have to work on plans to increase their public shareholding by at least 3-5% annually to ensure that they fulfil the minimum threshold level of 25%.
Early this year, the government had put out a draft proposal, asking all listed companies to ensure a minimum public holding of 25% while listing and subsequently, on a continuous basis. The norms relating to public holding are specified under the Securities Contract (Regulation) Act, which is administered by the finance ministry. The government move is aimed at boosting liquidity in the markets, better price discovery and to discourage possible efforts at manipulating stock prices. After obtaining feedback from the industry and other agencies, the government is now set to firm up the new norms. As per the proposal under consideration, listed firms which do not have a public shareholding of 25% will have to ensure this by increasing their public shareholding annually by anywhere between 3 and 5%, according to a person close to the development. Public shareholding is now taken as inclusive of the shares held not just by individuals but by financial institutions, foreign portfolio investors, mutual funds and non-resident Indians, employees and others. The government will take a call soon on whether this categorisation should be changed or tightened. Listing rules now state that at least 25% of the equity shares on offer should be offered to the public. Within the 25% public category, a dominant share is allocated to institutional investors with individuals accounting for a relatively small percentage. There are over 230 listed companies in which the non-promoter holding is well below 25%. By having a higher public holding or control of shares with investors other than promoters, it has been argued that ramping up stock prices would be difficult. According to the government, going by the data provided by the National Stock Exchange, the average public holding in listed companies in India is only 13%. Holding of Indian promoters, in contrast, is on an average as high as 48%, the data show. Efforts in the past including one mounted by the stock market watchdog Sebi to force companies to comply with these rules failed to yield results, given the stiff resistance put up mainly by promoter-led firms. Among those companies which could be impacted by the proposal are information technology major Wipro, in which the non-promoter holding is 18.99% - the promoter controls 79.42% - and Videocon Industries where the non-promoter holding is a tad above 18 %. Several state-owned companies may also be hit. The list includes NMDC in which the government has a stake of over 99% and the public holding is just 0.13% and MMTC with a meagre public holding of 0.02%. Index heavyweight ONGC has an individual shareholding base of just 1.82 %, SAIL 2.08%, BHEL 2.23% and NTPC 2.57%. These state-owned companies were able to list earlier with just a minor dilution, thanks to a special dispensation by the government. All those companies with a low public float will have to approach the capital markets with follow-on offers to comply with the rules once they are finalised and notified. The Left parties had earlier criticised the proposal, saying this was privatisation through the backdoor. The government seems to be settling for an incremental approach of raising the shareholding annually by a certain percentage as it will not rock the market. Besides, this approach does not discriminate between a private corporate and a state-owned company. The finance ministry's draft proposal had earlier said the threshold public holding should be calculated without taking into account the stakes of non-promoters such as foreign portfolio investors, institutional investors and mutual funds. A key factor in the changes to the rules on listing now under way would be the definition of public holding or that of a promoter. A view will also have to be taken on how to categorise the holdings of those holding shares under an employee stock option plan or sweat equity and also high net worth individuals. There is also a debate on as to whether the threshold public holding of 25% proposed now should be reduced to 20%. To conform to the new norms being finalised, the holdings of promoter groups would have to be diluted through public offerings. The lobbying arms of Indian industry had said the move could lead to a flurry of equity issuance by many companies and in turn, dampen sentiment in the secondary market. Along with the change in rules by the government, Sebi will have to amend its regulations to ensure that companies comply with this norm and also specify the punishment for non-compliance. In 2005, the capital markets regulator had directed Indian corporates with low public holdings to improve the free float or the percentage of shares which are available for trading. Sebi told all listed companies to maintain at least 25% shareholding with the public. However, Sebi's efforts did not succeed. The regulator has the powers to ease the listing norms for companies. The finance ministry has, however, indicated that it proposed to withdraw these powers. In an interview with this newspaper a few months ago, SEBI chairman CB Bhave had said that the difficulty was that a lot of companies had been allowed to come into the market with even 10% public holding. "If you say that these companies can automatically delist, then you must worry about the rights of investors who are being denied a market. When the issue was being made, the company promised people that with this 10% there will be a listing in the exchanges. It means that the shareholder has come in with the knowledge and a promise from the company that the shares will be listed. Now, if you say that this company can be automatically delisted because it has only 10% issued capital, then you have a difficulty." Mr Bhave also highlighted then another dimension to the issue: some state-owned companies have less than 25% holding in the hands of the public. "If you delist them, then one is being unfair to the non-government shareholders who don't have a market at all," he had said. http://economictimes.indiatimes.com/News/Companies_may_have_to_hike_public_stake/articleshow/3473241.cms A likely impossibility is always preferable to an unconvincing possibility. - Aristotle --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. 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