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The countdown has begun for companies that have not yet complied with the minimum public shareholding norms issued by the Securities and Exchange Board of India in June 2010. Under these norms, listed companies would have to have a minimum public shareholding of 25 per cent over the next three years.
Since the change in norms, there have been 44 offers for sale (OFS) and eight institutional placements, adding up to almost Rs 50,000 crore. However, the norms were relaxed for public sector companies and they were mandated to increase their public shareholding to 10 per cent by June 2013.
Despite the three-year window given to companies, at least 87 companies have not been able to comply with the minimum public shareholding norms. Given that the regulator would impose some kind of a penalty on firms that have not even attempted to dilute their stake further, equity strategists expect a rush of fresh paper in the market over the next 10 days.
Kotak Institutional Equities estimates a further sale of around Rs 10,750 crore over the next few days (by June 3, 2013) as 75 private sector companies have yet to comply with the 25 per cent minimum public shareholding norm. Another 12 PSUs have to comply with the minimum public shareholding requirement of 10 per cent by August 9, 2013, which will add another Rs 3,740 crore at current prices.
In the current environment, where markets are driven largely by global cues, the success of any such fire sale would depend on the mood and liquidity. Currently, companies are allowed to take the OFS route, institutional placement route or follow-on public offer. Any other route would require the regulator's approval.
Some of the companies that conducted OFS but still could not comply with the minimum public shareholding norms opted for institutional placements. Others like Godrej Properties, Godrej Industries, Prestige Estates, Timken India, Thomas Cook and Fortis Healthcare followed the institutional placement route to bring down promoter holdings. Some companies are even opting to issue bonus shares to non-promoter entities.
