India Inc opposes 25% public holding norm

Corporate India is not in favour of a uniform 25 per cent minimum public shareholding for all listed companies as proposed by a recent finance ministry discussion paper.

Some large companies said the measure would broaden and deepen the equity cult in the country, but feel that a blanket 25 per cent minimum public shareholding norm should not be applied indiscriminately to all companies.

The ministry had floated the paper on February 1 and asked for public comments by the month-end. The minimum public shareholding limit now is 10 per cent.

Finance ministry officials have received around 40 responses. "We are analysing the comments sent by various respondents. The consultation process is on," an official said.

The finance ministry and The Institute of Company Secretaries of India (ICSI) will hold discussions with company representatives on March 29 to evolve a consensus on the proposal.

"The exercise is meant to give India Inc a platform to share their views on the issue and clear their doubts," the official said.

The chief financial officer of a large, listed private sector telecom services company told Business Standard that a minimum float of 25 per cent is not necessary. "This norm can apply to small firms, but it may not be practical for companies with large market capitalisation," he said.

For instance, if the 25 per cent norm were to apply to a recent IPO by one of India's largest real estate firms, the company would have had to raise around Rs 20,000 crore through the issue.

"The company may not have wanted to raise so much money. On the other hand, it was also not possible for it to issue the shares at a lower premium only to satisfy regulatory norms," a market analyst said.

On its part, the Federation of Indian Chambers of Commerce and Industry (Ficci) has said the proposal to amend the listing norms "is fraught with manifold issues and concerns and should be thoroughly examined before implementation".

Not everybody agrees. Primary market experts like Prithvi Haldea said there is a need to revise the threshold as the existing 10 per cent public shareholding norm is leading to lower floats and, therefore, higher manipulation.

Price discovery in the secondary market is also not very good, Haldea added. The goal should be to ensure larger floats so that the market is more orderly.

Referring to all large initial public offers over the past five or six years, which have coincided with an unprecedented bull run in the equity market, Haldea said most issues came with a float size of 10 per cent. In 1999, all IPOs with an issue size of Rs 100 crore were allowed to float 10 per cent of their equity base.

"My concern is that the Rs 100 crore threshold is very small and was set at a time when the market had not evolved to its present state. There is a need to review this threshold and take it to Rs 300 crore to Rs 400 crore", he added.