After deliberating for long, the finance ministry on Friday said at least 25% shareholding of all listed companies should be with the public.

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Companies which aren’t there can reach the level through an annual addition of at least 5% stake.

Considering that the minimum listing norm now is 10%, companies will get a maximum 3 years to fall in line.

Crisil, the rating agency, estimates this would mean follow-on public issues from at least 170 companies which would raise about Rs 160,000 crore, including three Sensex companies — NTPC, Wipro and DLF.

Experts believe the moveis a positive move that will help deepen the equities segment without deluging the secondary markets with floating stock.

“It’s a welcome move, and has been pending for long. It would help increase the free float and market capitalisation. I do not see any major impact on the secondary markets as the timeline is quite sufficient,” said Deena Mehta, managing director at broking house Asit C Mehta Financial Services.

“It will lead to the availability of more good quality paper. It will give new investors the opportunity to participate in equities though IPO route where they may even get some discount,” Mehta said.

As for companies planning new listings, if the post-issue capital of the company calculated at offer price is more than Rs 4,000 crore, the company may be allowed to go public with 10% public shareholding.

It can then comply with the 25% guideline by increasing its public shareholding by at least 5% every year.

Companies whose draft offer document is pending with the Securities and Exchange Board of India (Sebi) must also increase their public shareholding by at least 5% per year, irrespective of the post-issue capital calculated at offer price.

Companies can increase their public shareholding by less than 5% a year only if they are able to comply with the 25% norm during that period.

Also, every listed company would have to maintain the public shareholding level at 25%. If it falls below that threshold at any point, the company must return to the required 25% public holding level within 12 months, the finance ministry has said.

Last year, finance minister Pranab Mukherjee had in his Budget speech proposed to raise the public holding threshold for all listed companies.

Mukherjee pointed out that the average public float in Indian listed companies is less than 15%.

He also said “deep non-manipulable markets require larger and diversified public shareholdings.”

Mukherjee had added that “this requirement should be uniformly applied to private sector as well as listed public sector companies.”

Soon after the July 2009 Budget, 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 had underlined the need for defining ‘public’.

Interestingly, the ministry had suggested “appropriate enforcement action, including delisting”, if the  25% minimum public holding norm was not complied with.

On the definition of the term ‘public’, the discussion paper had said, “If public means non-promoters and includes financial institutions, foreign institutional investors, mutual funds, NRIs/overseas corporate bodies, private corporate bodies and employees, the floating stock would be insignificant.”

The norms relating to public holding are specified under the Securities Contract (Regulation) Act, which is administered by the finance ministry.

Currently, Sebi has powers to waive or relax the listing requirements under the Securities Contract (Regulation) Act.

Stock exchanges can also relax listing requirements for a government company.

Among other countries, 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), according to the finance ministry paper.