Sebi discuss proposal on 25% compulsory public shareholding

Market regulator Sebi today said that it was discussing the issue of making it mandatory for all listed companies to have at least 25 per cent of their shareholding with public investors.

"It's still under discussion," Securities and Exchange Board of India Chairman C B Bhave told PTI when asked about the government's plans to make 25 per cent non-promoter shareholding mandatory for all the listed companies.

Finance Ministry came out with a draft proposal last year in this regard, while Finance Minister Pranab Mukherjee, in his budget speech earlier this week, said that equity holding of non-promoter or public shareholders in all listed entities, whether from public or private sector, needs to be raised.

In his budget speech, Mukherjee had said: "The average public float in Indian listed companies is less than 15 per cent. Deep non-manipulative markets require larger and diversified public shareholdings."

Emphasising that this requirement should be uniformly applied to the private sector as well as listed public sector companies, Mukherjee proposed to "raise, in a phased manner, the threshold for non-promoter public shareholding for all listed companies."

The Finance Minister had earlier floated a discussion paper inviting comments on a proposal for requirement of a minimum 25 per cent public holding for a company to remain listed. When asked whether SEBI has conveyed its views in this regard to the Finance Ministry, Bhave said: "We might have replied, but I don't want to comment on this issue."

The Finance Ministry had sought to make promoters liable for keeping public holding above this 25 per cent threshold within three months in the case of public holding going below 25 per cent for any reason.

"The larger the number of shares and the number of shareholders, i.e. The larger the public float, the less is the scope for price manipulation," Finance Ministry had said.

The Ministry had also proposed that there should be no discrimination between a government company and a non- government company and the powers of the stock exchanges and SEBI to relax listing requirements should be withdrawn.

There are a number of public sector companies where public holding is below 25 per cent, while in some cases the public holding is only in single-digit. For example, non-government holding in MMTC is less than one per cent and the same is just over one per cent in NMDC.    

The existing rules, which are in place since 2006, also mandate a minimum 25 per cent public shareholding for the listed companies, but there exist many exemptions. Till 1993, regulations required a minium 60 per cent public holding, but there were relaxations.

In 1993, the threshold was lowered to 25 per cent and further cut to 10 per cent in 2001, before being raised to 25 per cent in 2006. But all along, there have been flexibilities in the regulations allowing companies to have promoter holding of up to 90 per cent in most cases.