After much dilly-dallying, the finance ministry is likely to take a call in the next few days on its proposal to make it mandatory for listed companies to have public holding of at least 25 per cent of their total paid-up capital for all times.
“In the next few days, we are most likely to decide on the issue,” finance ministry sources said.
In February this year, the ministry had come out with a discussion paper on the issue, proposing that for a company to be listed and continue to be listed, it must have a public holding of 25 per cent or more.
“If for any reason, the public holding reduces below 25 per cent, the promoters, management and company may be jointly and severally be liable to bring the public holding to 25 per cent, within three months, in the manner prescribed by the Securities and Exchange Board of India (Sebi), failing which appropriate enforcement action, including delisting, may be taken,” the discussion paper had said.
Analysts said most of the companies forming part of the Sensex would fail the 25 per cent public shareholding test.
Shareholding pattern of the NSE-listed companies indicates that Indian public hold about 13 per cent of the capital, despite reservation of 35 per cent for retail at the public issue stage.
Currently, norms under the Securities Contracts (Regulation) Rules specify that a company seeking listing of its securities on a stock exchange shall offer at least 25 per cent of securities to the public for subscription.
More From This Section
The company may also give 10 per cent of the holding for public subscription, provided minimum 20 lakh securities are offered to the public, the size of the offer to the public is a minimum of Rs 100 crore and the issue is made only through book building method with allocation of 60 per cent of the size to the qualified institutional buyers.
Currently, there is also a continuous listing requirement that binds companies, with some exceptions like government-owned companies, to always maintain 10 per cent or 25 per cent of public holding, depending on the nature of their public offer and outstanding listed shares.
The ministry’s proposal said that standards for initial listing and continued listing may be uniform.
The discussion paper had further proposed that there should not be any discrimination between a government-owned company and a non-government company in this regard.
The powers of the stock exchange to relax any of the conditions of listing with the prior approval of Sebi in respect of a government company needs to be withdrawn, it said.
The finance ministry’s paper also recommended defining the word ‘public’, as this has not been defined yet.
“If public means non-promoters and includes FIs, FIIs, MFs, employees, NRIs/OCBs and private corporate bodies, the floating stock would be insignificant,” the discussion paper had said.
The proposal has evoked strong response from India Inc and its representative bodies.
Industry body Ficci opposed the proposed norm that “would force the promoters in a number of listed entities to dilute their stake to 75 per cent or much below the 75 per cent levels”.
Ficci based its opposition to the fact that the proposed norms do not favour the inclusion of ADRs, FIIs, FIs and mutual fund holdings within the definition of public float. All these are currently counted as non-promoter holdings, it said.