Ingenuity in meeting public holding norm

India Inc petitions Sebi with ideas as deadline nears, quite a few of these being unconventional

Ideas have not been a constraint for the many Indian companies looking to comply with next week’s deadline for the minimum public shareholder norms. While the bulk have taken the conventionally popular offer-for-sale (OFS) route to pare promoter holding below 75 per cent, some have taken atypical routes.

These include winding up of depository receipt programmes, free bonus shares to minority shareholders and moving excess promoter holding to a philanthropic trust.

OFS apart, the Securities and Exchange Board of India (Sebi) has prescribed other means such as an Institutional Placement Programme (IPP), a rights offering and bonus issues for companies. The regulator has also said it would, on a case-by-case basis, consider any other route requested by firms. Some of these did not want to sell stake to investors due to unfavourable market conditions.

For instance, Tata Communications, earlier this month, decided to terminate its American Depository Receipt (ADR) programme and delist from the NYSE to meet the public shareholding norm. Currently, the promoter holding  is 80.15 per cent, as its ADRs, which amount to nearly five per cent of the shares, are not considered public holding. After the NYSE delisting, the promoter holding will come down to 76.15 per cent. Managing Director Vinod Kumar, in a results’ conference call today, said the promoters would take more steps to bring their holding down to 75 per cent.

Earlier this month, Sebi had approved a unique proposal, of transferring promoter holding to a philanthropic trust by the Azim Premji-led Wipro to achieve the public shareholding requirement.  The information technology company had taken the approval to transfer promoter holding in excess of 75 per cent in Wipro to an ‘Irrevocable Independent Trust’, to carry out philanthropy.

Certain companies, Gammon Infrastructure being one, issued bonus shares to only non-promoter shareholders to bring down promoter stake to below 75 per cent. Some foreign owner-backed companies such as Gillette India and Gokaldas Exports were seen to classify some promoters as non-promoters to achieve 25 per cent public shareholding. However, this method didn’t go down well with Sebi.

People close to the development said in the run up to the expiry of the  deadline, the regulator had been flooded with various ‘strange’ requests from companies and their lawyers. While some sought relaxation on the share-sale norms, others wanted permission for an ‘out of the box’ idea, said a source.

One such representation made to Sebi was to allow an extension, especially to multinational companies, citing the country’s current account deficit (CAD) problem. The logic being, foreign promoters would repatriate the capital raised by conducting stake sales to their home country, thus straining the country’s CAD.

In recent weeks, about a dozen companies have lowered their promoter shareholding and another half a dozen have lined up share sales. Still, at least 40 private companies have promoter holding in excess of 75 per cent and about a dozen public sector companies have government ownership of over 90 per cent. The deadline for private companies to meet the minimum public shareholding expires on Monday. PSUs have time till August to have at least 10 per cent public shareholding.

THE ROAD LESS TRAVELLED
Some firms have taken innovative routes to meet public shareholding

Tata Communications: Delisting from NYSE, terminating ADRs
Wipro: Scheme of demerger & transfer of shares to trust
Gammon Infra, Westlife Development & Pentokey Organy: Issue of bonus shares to public shareholders
Gillette India and Gokaldas Exports: Declassification of promoters as public shareholders