India on Friday, said that listed companies must have 25 percent minimum public holding to broadbase the shareholding pattern and bring more transparency in capital markets - a move that is expected to see a deluge of primary offers worth nearly $45 billion.
"Existing listed companies having less than 25 percent public holding have to reach the minimum level by an annual addition of not less than 5 percent," said a statement issued by the finance ministry.
"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. Further, the larger the number of shareholders, the less is the scope for price manipulation."
The proposal was mooted by Finance Minister Pranab Mukherjee in his budget speech February and has been made in consultation with the markets watchdog Securities and Exchange Board of India (SEBI). This has been done by way of amendments to the Securities Contracts (Regulation) Rules.
Analysts said companies can meet the new requirement by using two options, or a combination. The first is promoters sell their stake till the public holding goes up to 25 percent. Second, the company issues fresh equity to the public.
"This is in line with practices followed in developed economies globally and is expected to improve the liquidity in these companies," said Tarun Bhatia, the director for capital markets with Crisil Research, an arm of the rating agency.
The agency estimates that 179 listed companies currently have public shareholding of below 25 percent and 82 percent of the estimated funds are likely to be raised by 29 listed government entities in order to adhere to the new norm.
Based on the current market price and the extent of promoter holding, Crisil says these companies will raise Rs.1.6 trillion if promoters opt for sale of shares and Rs.2.1 trillion if the company plans to issue fresh shares.
The new guidelines notified Friday include:
-The minimum threshold level of public holding will be 25 percent for all listed companies
-Existing listed companies having less than 25 percent public holding have to reach the minimum level by an annual addition of not less than 5 percent
-For any new listing, if the public offer is over Rs.4,000 crore, the company can with 10 percent public holding first and reach the 25 percent requirement with an annual increase of 5 percent
-This rule also applies to companies that have filed their draft prospectus with the markets watchdog, as they have to raise their public holding by at least 5 percent per annum