25 percent public holding mandatory for listed companies

By SiliconIndia   |   Tuesday, 30 September 2008, 03:51 Hrs   |    1 Comments
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New Delhi: The drafted script of the government to make 25 percent public holding mandatory for listed companies, will take the shape of a concrete rule in a few days. Commenting on this debated and delayed topic, "In the next few days, we are most likely to decide on the issue," Finance Ministry sources said.The move is likely to affect over 230 listed companies in which the non-promoter holding is well below 25 percent.

The ministry had come out with a discussion paper on the issue where it said, "If for any reason, the public holding reduces below 25 percent, the promoters, management and company may be jointly and severally be liable to bring the public holding to 25 percent, within three months, in the manner prescribed by SEBI, failing which appropriate enforcement action, including delisting, may be taken." Moreover, norms under the Securities Contracts (Regulation) Rules specify that a company seeking listing of its securities on a stock exchange shall offer at least 25 percent of securities to the public for subscription. According to the current norms, all companies except for some like government companies, shall maintain 10 percent or 25 percent of public holding, depending on the nature of their public offer and outstanding listed shares.

However, a scan through the NSE and Sensex will make it apparent that currently most of the companies will fail to reach the mark of 25 percent public shareholding. Infact, most of the companies in the NSE list has around 13 percent of public holding of the capital despite a reservation of 35 percent for retail.

If they does not fulfill the mark then the companies can give 10 percent of the holding for public subscription, provided minimum 20 lakh securities are offered to the public, the size of the offer to the public is a minimum of 100 crore and the issue is made only through book building method with allocation of 60 percent of the size to the qualified institutional buyers. But this is opposed by companies, as the industrial body Ficci said, "This would force the promoters in a number of listed entities to dilute their stake to 75 percent or much below the 75 percent levels". The main reason behind the opposition is the non-inclusion of ADRs, FIIs, FIs and mutual fund holdings within the definition of public float which are currently counted as non-promoter holdings.

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