The government on Monday diluted the guidelines on public shareholding by lowering the minimum public float requirement for state-owned enterprises to 10 per cent against 25 per cent prescribed earlier.
Besides, it provided freedom to private sector companies by dispensing with the rule that required entities with less than 25 per cent public shareholding to dilute at least 5 per cent stake annually. Under the new rules, government as well as private companies can raise the public shareholding level within three years without any annual floor.
“They are doing the right thing. What we have seen is that markets open and shut, which would have meant that equity dilution would have been done even when the markets are not doing well. Giving them two-three years is the right way to do it,” said JP Morgan India Managing Director and Head of Investment Banking Rohit Chatterji.
The move follows lobbying by the industry and investment bankers, who had also suggested that depository receipts be included in the 25 per cent norm.
| BREATHER | |
| Name | Free float |
| Hind Copper | 0.41 |
| MMTC | 0.67 |
| Neyveli Lignite | 6.44 |
| NMDC | 10.00 |
| Nalco | 12.85 |
| NHPC Ltd | 13.64 |
| Power Grid | 13.64 |
| SAIL | 14.18 |
| Reliance Power | 15.22 |
| NTPC | 15.50 |
| Wipro | 20.55 |
| IOC | 21.08 |
| DLF | 21.36 |
| Mundra Port | 22.51 |
| Sun TV Network | 23.00 |
| * As per shareholding pattern as on June 2010 * Major A group firms with free float less than 25% | |
In the case of public sector companies, the move was pushed by the government, which has lined up public offers — initial as well as follow-on issues — by a host of companies. A 25 per cent equity dilution would have resulted in public sector companies selling shares at a lower or no premium, bankers said.
“Some flexibility was expected. Now it seems they have given them complete flexibility, which is probably what the government would want. They would want discretion on when they want to sell equity, rather than be forced to do so by Sebi (Securities and Exchange Board of India). The government will continue to raise money to fund the deficit so there is a likelihood that the money will come into the market anyway,” said Chatterji.
More From This Section
“The idea was to make the markets more liquid and issues by public sector companies would have accounted for a majority of the issues. But that purpose has been defeated. The move on PSUs will restrict liquidity and the flexibility to private companies will make the whole thing back-ended,” said the investment banking head at one of the largest foreign banks.
According to data culled out by the Business Standard Research Bureau, 16 A-group companies benefit from the government directive, with public sector companies being the biggest beneficiaries (see table).
On June 4, the government had notified rules that made it mandatory for all listed companies, including public sector enterprises, to have a minimum public float of 25 per cent.
Crisil had estimated there are 179 listed companies with a public holding of less than 25 per cent. These companies will raise Rs 1,60,000 crore if they opt for sale of shares and Rs 2,10,000 crore if they plan to dilute their stake via issue of fresh shares.
‘Public shareholding’ means equity shares of the company held by the public and not the shares which are held by custodians against depository receipts issued overseas. It will not include the promoter, promoter group, subsidiaries and associates of a company. Public shareholding of 25 per cent was also required before the June amendment, but stock exchanges and Sebi were given powers to relax the norms for PSUs and companies in information technology, media, entertainment and telecommunications sectors.
The norms in India will be similar to the rules in London where 25 per cent public shareholding is required for both initial and continuous listing. Countries such as Singapore, Hong Kong and the US have prescribed different public holding requirements in accordance with market capitalisation of companies.
As per the rules, the requirement for continuous listing will be the same as the conditions for initial listing. For new listing, if the post-issue capital of the company calculated at offer price is more than Rs 4,000 crore, it may be allowed to go public with 10 per cent public shareholding and comply with the 25 per cent public shareholding requirement by increasing its public float to 25 per cent in three years.