Compliance with Minimum Public Shareholding Norms

 

In June 2010, the SCRR Rules were amended to the effect that all public companies, listed or proposed to be listed, shall mandatorily be required to have at least 25% public shareholding (with the exception of PSUs which needed to have at least 10% public shareholding). Existing listed companies with public shareholding less than 25% were given three years to comply with the minimum public shareholding limit i.e. by June 2013 and PSUs were given time until August 2013. As the deadline for compliance approaches, promoters of Indian listed companies have been clamoring to offload their excess shareholding through various routes to comply with the revised norms prior to June 2013.

SEBI had allowed companies to take either one of the routes (viz., follow-on offering, offer for sale by promoters (OFS), institutional placement program (IPP), bonus/rights issue excluding the promoters) to comply with these requirements. Any company that wanted to take any other route than those prescribed by SEBI had to take the regulator’s permission before doing so.

More than 25 of the large/mid cap listed companies have already complied with the revised norms in the last one year. Given the run-up in stock prices towards end of last year and relative ease of use of the OFS process compared to other prescribed methods, most companies opted for the OFS route for complying with the SEBI norms, prominent among them were companies such as Reliance Power, Adani Power, Jaiprakash Power Ventures, DB Corp, NTPC, NMDC and Oil India. However, a few companies such as Godrej Properties and Godrej Industries opted for the IPP route. Gammon Infra opted for the bonus issue route given very low excess promoter shareholding whereas Wipro opted for the restructuring/demerger route post permission from SEBI. The more creative ones like Gokaldas Exports and Gillette India have tried to prune their excess shareholding by reclassifying their existing promoters as non promoters, which of course SEBI has objected to. However, the Gillette case is still subjudice as on date. Many companies have also opted for a combination of these routes to comply with the revised requirements.

However, based on shareholding pattern as of December 31, 2012, our analysis of the top 500 companies of the BSE500 index suggests that there are 40 companies yet to be compliant with the minimum public shareholding norms. Out of this there around 8 are public sector units and 32 are private companies. Out of the 32 private companies, 5 of them are companies that got listed with a post issue capital of more than Rs 4,000 crores and hence have three years post listing to adhere to the revised norms. 10 of these companies are listed subsidiaries of MNC firms.

The total value of stocks that need to be diluted by all the remaining companies prior to August 2013 amounts to approximately Rs 17,494 crores, out of which Rs 13,210 crores need to be offloaded by promoters of private companies (including Rs 3,246 crores by listed subsidiaries of MNC companies) and the remaining Rs 4,284 crores need to be offloaded by public sector units.

Article by Mohan Kumar K, Lead Analyst, InGovern Research Services Private Limited.

 

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