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SEBI decisions will help listed companies meet minimum public shareholding norms

SEBI decisions will help listed companies meet minimum public shareholding norms

Two SEBI decisions will help listed companies, private and state-owned, meet minimum public shareholding norms.

What's proposed: The Securities and Exchange Board of India, or SEBI, has opened two new avenues that will help both private and public sector companies offload their stake to comply with minimum public shareholding norms. In 2009, the finance ministry had mandated that all private listed companies should have public shareholding of 25 per cent, and listed public sector undertakings, or PSUs, of 10 per cent. Both have been given time till 2013. The first SEBI decision allows listed companies to place shares in an institutional placement programme, or IPP, while the second permits some of them to make 'offers for sale of shares through stock exchanges'. Apart from helping the listed companies, these new routes will give financial institutions attractive investment opportunities at a time when the market is depressed.

How they will work: SEBI has clarified that IPP can only be used to meet minimum public shareholding requirements. Public shareholding can be increased by a maximum of 10 percentage points by this method. And only qualified institutional buyers, or QIBs - well established financial entities - will be allowed to participate. Promoters will also have to reserve 25 per cent of the shares they divest for mutual funds and insurance firms. There should be at least 10 allottees, with no investor receiving an allotment of more than 25 per cent of the offer size. The 'offer of sale' route is only open to promoters of the top 100 companies (based on average market capitalisation). But it is not restricted to just those companies which need to meet public shareholding norms. For those using it, the stock exchange will provide a separate window during normal trading hours. Such companies will have to sell at least one per cent of their paid-up capital, not exceeding Rs 25 crore. Promoters or promoter groups are not permitted to bid for these shares.

Implications: Around 40 private companies, including Wipro, DLF, Godrej Properties and Jaypee Infra, where the promoter holding is above 75 per cent can thus use these methods to divest. Similarly, there are eight listed PSUs (See Stakes Too High), including MMTC and National Fertilizers, with over 90 per cent government holding. Paring the excess using the IPP route will earn the government an estimated Rs 12,000 crore. The second option can open up disinvestment opportunities for 27 other PSUs.

Published on: Feb 02, 2012, 12:00 AM IST
Posted by: Navneeta N, Feb 02, 2012, 12:00 AM IST