Among key measures that will help improve liquidity in existing stock counters while smoothening the process for companies to reach the minimum public shareholding requirement of 25 per cent by June 2013, the Securities and Exchange Board of India (Sebi) on Thursday announced a slew of measures. In addition to the existing two routes, the regulator has allowed companies to undertake rights and bonus issues.
However, unlike in normal practice where all shareholders can participate proportionately, promoters will not be allowed to participate in these bonus and rights issues. “The rights and bonus issues for this particular purpose have to be for shareholders other than the promoter group. The promoter will also not be allowed to renounce it in favour of somebody,” U K Sinha, Sebi chairman, said in an interaction with the media.
Amareesh Baliga, COO of Way2Wealth says the decrease in promoter holding will help improve the floating stock, reduce volatility in mid-caps and ensure minimum amount of public shareholding.
| HIGH PROMOTER HOLDINGS | |||
| Company | Promoter * holding (%) | Company | Promoter * holding (%) |
| Hind.Copper | 99.59 | United Bank (I) | 81.56 |
| MMTC | 99.33 | D B Corp | 81.51 |
| HMT | 98.88 | Fortis Health. | 81.48 |
| Natl.Fertilizer | 97.64 | Honeywell Auto | 81.24 |
| Neyveli Lignite | 93.56 | BGR Energy Sys. | 81.13 |
| Bombay Rayon | 93.15 | Blue Dart Exp. | 81.03 |
| R C F | 92.50 | Reliance Power | 80.42 |
| St Bk of Mysore | 92.33 | Engineers India | 80.40 |
| S T C | 91.02 | Oracle Fin.Serv. | 80.36 |
| Astra Zeneca Phar | 90.00 | Essar Ports | 80.30 |
| Coal India | 90.00 | Muthoot Finance | 80.12 |
| NMDC | 90.00 | Timken India | 80.02 |
| Fres.Kabi Onco. | 90.00 | Prestige Estates | 80.01 |
| SJVN | 89.97 | Jet Airways | 80.00 |
| Puravankar.Proj. | 89.96 | Indian Bank | 80.00 |
| BOC India | 89.48 | MOIL | 80.00 |
| Omaxe | 89.14 | Adani Enterprises | 79.95 |
| Gillette India | 88.76 | Central Bank | 79.15 |
| M R P L | 88.58 | Godrej Industries | 79.10 |
| Natl. Aluminium | 87.15 | Bank of Maha | 78.95 |
| NHPC Ltd | 86.36 | IOCL | 78.92 |
| SAIL | 85.82 | DLF | 78.59 |
| Bajaj Corp | 84.75 | Oberoi Realty | 78.49 |
| NTPC | 84.50 | Oil India | 78.43 |
| Jaypee Infratec. | 83.27 | Wipro | 78.37 |
| Mahindra Holiday | 82.69 | Pun. & Sind Bank | 78.16 |
| L&T Fin.Holdings | 82.64 | Eros Intl.Media | 77.80 |
| * Includes promoter group entities Details are as on 30th June 2012, and of BSE 500 companies Source: CapitaLine Plus | |||
These measures are also essential given the kind of money required to be pumped in by non-promoters (public, institutions, etc) to increase public holding to a minimum 25 per cent. According to data compiled by BS Research, of the BSE 500 companies, there are 66 companies where promoter holding is in excess of 75 per cent. If these companies were to bring down the promoter holding to a maximum 75 per cent, they will need to offload shares worth Rs 1,22,000 crore according to Thursday’s valuations.
However, not all agree that Sebi’s move will help. S P Tulsian of sptulsian.com says the measures announced are theoretical in nature. “It is difficult to fathom how the same (reducing promoter holding through rights) can be implemented as neither promoters nor minority shareholders would like to give an inch on the issue of pricing. If the offer is priced too aggressively there will be no buyers and no promoter would like to give their shares at a higher discount.”
While it’s difficult for any regulator to tread the path of deciding on the right valuation for any issue, Sebi has also announced some steps that will provide flexibility to issuers to manage an issue during volatile times.
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Given the volatile market conditions, stock valuations also change rapidly. In this context, it was becoming difficult for issuers to convince investors to subscribe to the offer during times when the markets fell sharply. In order to address this issue, Sebi has allowed issuers to offer a discount of a maximum five per cent to the price calculation as per regulations.
Additionally, it has provided flexibility to issuers who can now change the amount proposed to be raised as given in the objects of the issue at the RHP stage up to 20 per cent compared to 10 per cent earlier. Among measures to facilitate companies seeking the fast-track route for further public offerings (FPOs) and rights issues, Sebi has lowered the requirement of average free float market capitalisation from Rs 5,000 crore to Rs 3,000 crore.
While some experts claim the the FPO route was cumbersome, the Sebi is willing to consider those, too. In cases that need special attention or exemption, the Sebi has kept the options open.
“The Board has empowered Sebi to take decisions on a case-by-case basis,” Sinha said.
“Sebi will also specify other options which may enable (non-compliant) listed entities to reach minimum public shareholding requirements prescribed under SCRR, 1957, subject to appropriate checks and balances. Further, modifications, if any, as may be necessary, to the existing methods, will also be carried out to make them more operable,” the regulator said in a press release.
In June 2010, the government had amended the Securities Contract (Regulations) Act rules (or SCRR), by ordering all listed companies to have a minimum of 25 per cent public shareholding. Sebi has set a deadline of June 2013 for all private sector companies and August 2013 for all PSUs to meet these norms.
Earlier, Sebi had also introduced two routes, namely, offer for sale (OFS)/auction and IPP. Companies like ONGC and Wipro (OFS/auction) and Godrej Properties (IPP) have already gone through this to bring down promoter holdings.
In order to enhance investor protection, Sebi has mandated that companies provide updated information by filing a comprehensive annual disclosure statement in addition to existing requirements. This is on the lines of 20F filing prescribed by the US SEC. Experts suggest that 20F helps in standardising the reporting requirements of non-domestic companies. This helps investors to correctly compare these companies with their domestic counterparts.