Engineering major ABB is caught in a strange predicament. It has to incur disproportionate costs towards appointing bankers and exchanges to sell a single share, the one the promoters hold over and above the permissible limit.
Securities and Exchange Board of India (Sebi) rules mandate private sector companies to have at least 25 per cent public shareholding. Companies not complying with this norm have to do so by June 2013.
According to the company’s latest shareholding pattern, ABB’s public shareholding is 52,977,093 shares. Of the total outstanding shares of 211,908,375, public shareholding accounts for 24.99999965 per cent, while promoters ABB Asea Brown Boveri and ABB Norden Holding hold 158,931,282 shares, or 75.00000035 per cent. The promoters, therefore, have to sell an additional share.
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In an email response, ABB Limited India confirmed it was exploring ways to comply with the minimum public shareholding requirement.
Since the rules specify public holding has to be increased “in the manner prescribed by Sebi”, options such as an open market sale of the share are ruled out. So far, Sebi has specified five methods to increase public shareholding. In addition to follow-on public offerings, companies may use the offer-for-sale (OFS) mechanism through stock exchanges, as well as institutional placement programmes (IPPs). Recently, Sebi had allowed additional methods, such as rights issues and bonus issues, as the regulator was keen to ensure at least some of those not complying with the norms met the deadline.
However, those who framed these methods probably didn’t conceive a situation in which one might have to sell a single share—one of the conditions for institutional placement is “there shall be at least 10 allottees in every IPP issuance. No single investor shall receive allotment for more than 25 per cent of the offer size.” Sebi also states, “This method can be used only for the purpose of complying with minimum public shareholding requirements under SCRR (Securities Contracts (Regulation) Rules), either by way of fresh issue of capital or dilution by promoters through an offer for sale.”
Similarly, under OFS, the offer shall be “for at least one per cent of the paid-up capital of the company, subject to a minimum of Rs 25 crore.” Other methods, such as a rights issue or a bonus issue, are considered lengthy and also involve various other costs.
Today, ABB shares rose 0.7 per cent on the BSE, closing at Rs 776.70 per share.
Bankers said considering the peculiarity of the situation, the company could approach Sebi. “After its last board meeting, Sebi had said it would be open to changes in the existing methods on a case-by-case basis. This could be one such case,” said Manoj Kumar, assistant vice-president, Corporate Professionals, a Delhi-based investment bank.
In a press release on September 16, Sebi had stated, “Modifications, if any, as may be necessary, to the existing methods, will also be carried out to make them more operable.”
