25% public holding must for all

listed cos: Govt

• Published on Fri, Jun 04, 2010 at 17:20   |  Updated at Mon, Jun
07, 2010 at 09:15  |  Source : CNBC-TV18

• The government has raised the threshold for public shareholding in listed
companies, reports CNBC-TV18's Siddharth Zarabi. Finance Minister Pranab
Mukherjee in his Budget speech for 2009-10 had proposed to raise the
threshold for public shareholding in all listed companies to 25%.
• The Securities Contracts (Regulation) (Amendment) Rules, 2010 have been
notified today. As per the amendment, all listed companies will need to have a
minimum 25% public holding.
• Companies, where the public holding is less than 25%, will have to reach the
minimum level by an annual addition of not less than 5%. If they fail to do that,
they will have to restore the 25% public holding in one year.
•
• They do not foresee a flood of issues crowding the market.
• Sources said companies are free to choose the best dilution
process between a follow-on public offer or qualified institutional
placement.
• Standard provisions would apply for violation of Securities Contracts
(Regulation) rules. They confirmed that the provisions apply to both
private and public sector understanding (PSU) companies.
• The ministry, they said, has taken no view on multi-national
companies that may seek to delist. Also, inclusion of foreign
currency convertible bonds to calculate public shareholding will be
taken up later.
• The Finance Ministry feels that the reform can broadly be described
as a step to ensure that a widely held company is less difficult to
manipulate than a company that is closely held.
• The Ministry, sources said, considered various timeframes and
found the three-year period as optimal and reasonable. "If we raised
it by 15% in one go, the markets would have been shocked. And
five years is too long a period to raise this limit."
• CNBC-TV18 learns that the move has been vetted by the Law
Ministry and has been approved by the Finance Minister.
• A government press release said a dispersed shareholding structure
is essential for the sustenance of a continuous market for listed
securities to provide liquidity to investors and to discover fair prices.
"The larger the number of shareholders, the less is the scope for
price manipulation by promoters."
• With this decision, India in effect is moving closer to more
developed economies where the minimum public shareholding level
is something that is followed and maintained.
•
• ne 04, 2010: The Government has made amendments to the Securities
Contracts (Regulation) Rules. The salient features of the amendment are as
follows: 
a) The minimum threshold level of public holding will be 25% for all listed
companies. 
b) Existing listed companies having less than 25% public holding have to
reach the minimum 25% level by an annual addition of not less than 5% to
public holding. 
 
c) For new listing, if the post issue capital of the company calculated at offer
price is more than Rs. 4000 crore, the company may be allowed to go public
with 10% public shareholding and comply with the 25% public shareholding
requirement by increasing its public shareholding by at least 5% per
annum. 
d
For companies whose draft offer document is pending with Securities and
Exchange Board of India on or before these amendments are required to
comply with 25% public shareholding requirement by increasing its public
shareholding by at least 5% per annum, irrespective of the amount of post
issue capital of the company calculated at offer price. 
e) A company may increase its public shareholding by less than 5% in a
year if such increase brings its public shareholding to the level of 25% in
that year. 
f) The requirement for continuous listing will be the same as the conditions
for initial listing. 
g) Every listed company shall maintain public shareholding of at least 25%.
If the public shareholding in a listed company falls below 25% at any time,
such company shall bring the public shareholding to 25% within a maximum
period of 12 months from the date of such fall. 
• For instance, a company with already 21% public holding can do it
within a year and take it to 25%.
• The move will not impact companies looking to list. Companies with
pending initial public offering nod can go ahead without 25% public
shareholding. But they will have to later comply with the new norms
by increasing public shareholding by at least 5% per annum.
• The logic given for this by the Finance Ministry is primarily to
increase the depth of the market and to prevent manipulation.
• Meanwhile, sources in the Finance Ministry said that no company
will be exempt from the minimum public holding norms. "All waivers
have been done away with. There will be no case by case
exemption."
•