Ministry proposes 25% public holding floor

The proposed hike will apply to all companies - public as well as private.

To introduce more transparency and public participation in the stock market, the finance ministry has proposed raising the public shareholding limit for listed companies to at least 25 per cent from the existing 10 per cent.

The ministry has invited public responses to its discussion paper on this subject by February 28.

A finance ministry official said the proposed amendments to the Securities Contracts (Regulation) Rules, 1957, are likely to come into effect sometime early next financial year. 

NORTH BLOCK PROPOSES

• The word 'public' needs to be defined clearly
• For a company to be listed and continue to be listed, it must have a public stake of 25%.
• If the public holding falls below 25%, the promoters have to restore it within 
  3 months
• No discrimination between a government company and a private company.
• Uniform standards for initial and continuous listing

The proposed hike will apply to all companies "" public as well as private. There are around 250 big and small listed companies with promoter holding of over 75 per cent each.

The prominent among them are Wipro, Tata Consultancy Services, Jet Airways, DLF, Puravankara Projects, Akruti City, Omaxe, Plethico Pharmaceuticals, Sobha Developers, Mundra Port, BGR Energy, Blue Dart, Parsvnath Developers, and Bosch Chassis. The promoters, in most cases, currently hold over an 80 per cent stake in these companies.

The ministry reasons that since the word "public" has not been defined so far, it could mean "non-promoters" and include financial institutions, foreign institutional investors, mutual funds, employees, NRIs/OCBs, private corporate bodies, etc, thus making the floating stock insignificant.
 

Top 10 listed government-owned and private firms in which public shareholding is 25% or less
Company	Promoter Holding %	Company	Promoter Holding %
PRIVATE		PUBLIC
DLF	88	NTPC	90
TCS	78	NMDC	98
Reliance Petroleum	75	MMTC	99
Unitech	75	SAIL	86
Wipro	80	IOC	80
Mundra Port	81	Power Grid Corp	86
Adani Enterprises	75	National Aluminium	87
VSNL	76	Hindustan Copper	100
Sun TV Network	77	Neyveli Lignite	94
Lanco Infratech	75	Power Finance	90

The ministry said a large number of shares distributed among a large number of shareholders is essential for the sustenance of a continuous market for listed securities to provide liquidity to the investors and to discover fair prices.

The larger the number of shares and the number of shareholders, ie, the larger the public float, the less is the scope for price manipulation. In order to ensure this, the securities laws prescribe initial and continuous listing requirements.

If the proposal passes muster, "there will be no discretion left in the hands of any promoter," asserted a finance ministry official, adding that the powers to relax any conditions of listing with respect to government companies are also proposed to be withdrawn.

This was proposed by the Securities and Exchange Board of India (Sebi) to the department of company affairs in October last year.

The discussion paper further states that if for any reason, the public holding exceeds this limit, 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 Sebi, failing which appropriate enforcement action, including delisting, may be taken".

Janak Dwarkadas, practising senior counsel, Bombay High Court, said: "It's a welcome move, but the time limit is too short. It may not be feasible for promoters to divest up to 25 per cent within three months. They may just extend the timeframe."

Supreme Court lawyer Pavan Duggal, concurred: "The move is welcome. It will introduce more shares for trading in the open market. Moroever, if the word 'public' is defined, it will reduce the scope for monopolising of shares by FIIs."