Email
Print
ShareNew Delhi: Within days of the Union Budget proposing to increase the average public holding in Indian listed companies, the finance ministry has floated a discussion paper on the issue, indicating the government's intention of implementing the measure at the earliest.
The paper has underlined the need for defining 'public'. For a company to be listed and continue to be listed, it must have a public stake of 25%, says the paper. It also talks about enforcement action, including delisting, if the public holding is not maintained at 25% in listed entities. In addition, the powers of the stock exchanges and the Securities & Exchange Board of India (Sebi) to relax listing requirements may be withdrawn, says the paper.
Finance minister Pranab Mukherjee pointed out in his Budget speech on July 6 that the average public float in Indian listed companies is even less than 15%. He also said "deep non-manipulable markets require larger and diversified public shareholdings."
The FM added that "this requirement should be uniformly applied to private sector as well as listed public sector companies." Mukherjee said he proposed to raise, in a phased manner, the threshold for non-promoter public shareholding for all listed companies.
The latest FinMin discussion paper has stated that if for any reason, the public holding falls below 25%, the promoters, management and company may be liable to bring the public holding to 25% within three months, in the manner prescribed by the Sebi. If that doesn't happen, "appropriate enforcement action, including delisting, may be taken," the paper says.
On the definition of the term 'public', the discussion paper said, "If public means non-promoters and includes FIs, FIIs, mutual funds, NRIs/OCBs, private corporate bodies and employees, the floating stock would be insignificant." The paper added that a view has to be taken on the matter. Importantly, it states that "the public offer envisaged at initial listing is of no consequence unless the public is actually allotted shares."
The finance ministry paper feels there shouldn't be any discrimination between a government company and non-government company vis-a-vis public holding in listed companies. "The powers of the stock exchange to relax any of the conditions of listing with the prior approval of Sebi in respect of a government company need to be withdrawn." It added that "the powers of Sebi to relax listing requirements may be withdrawn."
The norms relating to public holding are specified under the Securities Contract (Regulation) Act, which is administered by the finance ministry.
Currently, Sebi has the powers to waive or relax the listing requirements under the Securities Contract Regulation. Stock exchanges can also relax listing requirements for a government company.
At present, listed companies must maintain public holding of at least 25%, but with several exceptions. For instance, a company which has offered less than 25% but not less than 10% of the total number of issued shares must maintain the minimum level of public shareholding at 10%. Also, the requirement of continuous public shareholding doesn't apply to government companies, infrastructure companies and firms referred to the Board for Industrial and Financial Restructuring (BIFR).
The finance ministry paper has cited international scenarios on public holding norms in listed entities as well. In Singapore, a company must have between 12% and 25% public shareholding for an IPO, depending on what the market capitalisation is. For continuous listing, 10% public holding is a must in Singapore. In London, 25% public holding is mandatory both for IPO and continuous listing. In Nasdaq, 1 million publicly-held shares is essential in an listed entity, and 2.5 million publicly-held shares on the New York Stock Exchange (Worldwide).
