Sebi wants breather on 25% public holding norm

Market regulator Securities and Exchange Board of India has told the government that it favours giving companies five years to increase their public shareholding to 25 per cent.

Sebi's letter to the finance ministry follows a proposal by Finance Minister Pranab Mukherjee to increase the minimum public holding in all listed companies - whether government- and privately-owned - in last year's Budget.

To do this, the government will have to amend the Securities Contract Regulation Rules. Ahead of this, Sebi has written to the finance ministry suggesting that the exercise to increase public shareholding should be phased instead of one-time.

At present, companies are subject to different public shareholding criteria depending on sector, ownership and share issue size.

For instance, telecom, IT and infrastructure companies and companies that issue a minimum 2 million shares and hold a public offer of at least Rs 100 crore (Rs 1 billion) are exempt from the 25 per cent public shareholding requirement. These companies, however, have to ensure a minimum 10 per cent non-promoter holding during Initial Public Offers. Stock exchanges, however, have the discretion to exempt state-owned corporations from this stipulation.

Exempted companies and companies that have 20 million shares outstanding and a market cap above Rs 1,000 crore (Rs 10 billion) are required to maintain a minimum 10 per cent public shareholding to remain listed.

On hold Top listed companies in which the public holding is less than 25%
	Divestment
	in % *	Rs Crore #
MMTC	24.33	41470.30
NMDC	23.38	44998.63
Power Fin.Corpn.	14.78	4102.75
NTPC	14.50	24222.69
MRPL	13.57	1839.91
Natl. Aluminium	12.15	2865.97
Power Grid Corpn	11.36	5115.93
SAIL	10.82	9188.45
Reliance Power	9.78	3320.38
Tech Mahindra	7.97	916.07
Mundra Port	6.04	1550.68
Oracle Fin.Serv.	5.52	1036.39
Wipro	4.61	4435.97
IOCL	3.92	2983.76
DLF	3.64	1896.81
Tata Tele. Mah.	2.73	125.34
Tata Comm	1.15	99.59
Bharat Electron	0.86	135.77
Total		150305.39
* The extent to which total promoter holdings needs to be reduced to ensure a minimum 25% of public holding # Total amount for disinvestment  as per current market cap

For all other companies, promoters are required to raise the public shareholding to 25 per cent if it falls below that level after an IPO.

However, state-owned firms, infrastructure companies and companies referred to the Board of Industrial and Financial Reconstruction have been exempted from the continuous listing requirement as well.

Sebi's suggestions for a phased increase in public shareholding stems from representations by investment bankers who have argued that many companies may not need that much capital and that promoters may not want higher floating stocks because that would cap share price appreciation.

At present, out of the top 100 companies listed on the Bombay Stock Exchange and the National Stock Exchange, 18 have a public holding of less than 25 per cent. Ten of these are government-owned companies.

If all these companies were to follow a 25 per cent public holding rule, they would collectively have to raise Rs 150,000 crore (Rs 1,500 billion) of money from the markets at today's price.

Given the government's huge disinvestment programme - some 30 state-owned firms are scheduled for IPOs - it is unlikely to meet the 25 per cent target even in the five-year time frame.

The practice of having a minimum public holding for listed companies is prevalent globally. Singapore and Hong Kong allow less than 25 per cent public holding if the market cap is higher than a certain limit, whereas the UK follows a flat 25 per cent norm.