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Public may have 25 percent stake in listed firms
By siliconindia
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Wednesday, 21 January 2009, 17:30 IST |
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New Delhi: To ensure that the Satyam imbroglio remains the only one of its kind, the Government may insist on a new regulation that ensures every listed company has 25 percent of its ownership reserved to the public. The Government feels that this would serve as a check on managements, thereby preventing recurrence of financial.
According to stock exchange data, public holding of a company is just 13 percent on an average although 35 percent is reserved for them at the public issue stage because the term 'public' includes entities that are not necessarily public in nature.
Clarifying May 2008 that the floating stock would become insignificant if public meant 'non-promoters' such as foreign institutions, FIIs and mutual funds, the government redefined the term 'public', ensuring that 25 percent is exclusively reserved for the public. If the existing definition is retained, then the 25 percent threshold may be raised in such a way to ensure that public shareholders do not lose their opportunity to take part in a company's fortunes.
The primary concern with low public holding is that the number of shares available for trading is low. This causes volatility in prices and could lead to price manipulation, as it is easier to corner shares. Companies can list with as little as 20 lakh shares if certain conditions are met.
The government had unveiled a discussion paper in February 2008 that had suggested a minimum 25 percent public holding limit for listed companies. But it was put on hold after the stock markets fell following the global financial turmoil. The paper had also proposed that if public holding falls below 25 percent, the promoters, management and the company might be jointly and severally be liable to bring it to 25 percent within three months or face action, including de-listing.
However, subsequent thinking by the ministry has viewed that promoters should be given substantial time, 3-5 years, to dilute their stake, thereby complying with the norm.
Most countries have similar norms for minimum public holding. The UK has a minimum 25 percent public holding requirement for companies that have a market capitalization of less than British '100 million. It selectively allows lower limits for companies with higher market cap as in Singapore. The NYSE on the other hand, requires a certain minimum number of shares to be issued to the public.