Companies now have multiple tools to dilute promoters' stake, thanks to market regulator the Securities and Exchange Board of India's (SEBI's) new norms on shareholding patterns.
Companies now have two new options — rights issue and bonus issues — besides existing options that include offer for sale (OFS), institutional private placement (IPP) and follow-on public offer (FPO), to dilute shareholding.
The selection of tool for stake dilution is likely to vary from company to company.
"Companies will select options based on their requirement," said Prithvi Haldea, chairman and managing director, Prime Database. "Those who want to reward existing shareholders will go for rights and bonus issues while those who want sell shares to institutional investors will opt for IPP." There will be less takers for FPO route because of the volatile stock market conditions, he said.SEBI has set a June 2013 deadline for companies to cut promoters stake to 75% and has also said that deadlines will not be extended. At present, 193 companies are non-compliant with SEBI's new shareholding norms and these companies would have to sell shares worth Rs. 32,000 crore to comply with new regulations.
"The Good thing is that two new options — rights and bonus issues - are market neutral," said Jagannadham Thunuguntla, head of research, SMC Global Securites.
"Now companies cannot complain that they could not dilute shareholding because of weak sentiments in stock market," said Thunuguntla.
Till 2011 end companies only had the FPO route to dilute their stake but early this year, SEBI introduced OFS and IPP to meet new deadline. The regulator, last week, also allowed companies to sell stake via rights and bonus issue.
Under the OFS route, companies can sell shares by auctioning the securities through stock exchanges to retail and institutional investors while in the IPP programme, shares can be sold only to qualified institutional buyers.