The government has proposed significant changes in rules to ensure that the public holding in listed companies does not fall below 25 per cent and has suggested redefining of public holding to exclude sections of institutional investors.
The changes have been proposed in the Securities Contract Regulation Rules (SCRR) that govern the listing norms of companies traded on stock exchanges. In case the government approves the proposal it may result in a flurry of follow-on public offers from large companies like DLF, Wipro, Tata Consultancy Services (TCS), and public sector behemoths like Oil and Gas Corporation and MMTC, where the promoter holding is more than 75 per cent.
In case the proposal is accepted it will have major impact on proposed public issues as the minimum float size will need to be increased to 25 per cent from the current 10 per cent. In that eventuality companies valued over Rs 100,000 crore will have to offload stock worth Rs 25000 crore at the least.
In a discussion paper titled, “Requirement of Public Holding for Listing”, the Finance Ministry on Friday proposed that for a company to be listed and continue to be listed it must have a public holding of 25 per cent.
“If for any reason, the public holding falls below 25 per cent, the promoters, management and company may be jointly liable to bring the public holding to 25 per cent within three months,” it has proposed.
“As of now the word ‘public’ is not defined. If ‘public’ means non-promoters and includes FIs, FIIs, mutual funds, employees, NRIs/OCBs and private corporate bodies among others, the floating stock would be insignificant. A view needs to be taken on this,” the paper says, pointing to a more focused definition of who the retail investor is.
It also proposed “appropriate enforcement action, including delisting” if companies fail to increase the public holding to at least 25 per cent.