Crisil Equities today said implementation of the government's proposal to increase public holding in companies to 25 per cent could witness a spate of issues, garnering over Rs 2 lakh crore from the primary market.
Crisil said there are 179 listed companies that have public shareholding below 25 per cent and implementation of the government's proposal will significantly increase liquidity in the equity markets, make fair price discovery more robust and enhance investor participation.
"Based on the current market price and the extent of promoter holding, it is estimated that these companies will raise Rs 1.6 trillion (Rs 1.6 lakh crore) if they opt for sale of shares and Rs 2.1 trillion (Rs 2.1 lakh crore) if they plan to dilute their stake via issue of fresh shares," Crisil Equities said in a statement.
It added that about 82 per cent of the estimated funds are likely to be raised by 29 listed government entities in order to adhere to the proposal.
The Finance Ministry and the Securities and Exchange Board of India (SEBI) have been contemplating increasing public shareholding of listed entities to a minimum 25 per cent. At present, most of the IPOs come with a 10 per cent float and certain listed PSUs have holding below that threshold.
Crisil Research Director, Capital Markets, Tarun Bhatia said, "The proposal is in line with practices followed in developed economies globally and is expected to improve the liquidity in these companies."
While the London Stock Exchange requires 25 per cent minimum public shareholding, the Singapore and Hong Kong stock exchanges also stipulate public shareholding between 12 per cent and 25 per cent, based on the market capitalisation of the company.
Bhatia cautioned, however, that companies would need adequate time to fulfil the 25 per cent listing requirement, because they would find it difficult to raise the estimated amount of money in the short term, as it would could impact their market values.
Bhatia said, "Such a significant step should be implemented in a gradual manner, as the overall quantum of fund raising is almost three times average annual fund raising observed in the recent past."
Crisil said that over the past six years, companies have raised Rs 500-550 billion (Rs 50,000 crore to Rs 55,000 crore) annually on an average through equity issues, including IPOs.
