Bankers, firms press for change in new public float rules

Against minimum 5 per cent annual stake sale, want more flexibility.

Investment bankers are pressing for removal of a rule mandating a minimum five per cent annual stake sale by promoters of companies with public float of under 25 per cent, the minimum prescribed under the Securities Contracts (Regulation) (Amendment) Rules.

Companies and some investment bankers are also demanding the inclusion of depository receipts while calculating the public float.

Industry and bankers are worried that a forced dilution will adversely impact valuations of companies and return on equity. Besides, they said, the market might not have the appetite to absorb large share sales. The government has already indicated that it is open to reviewing some of the norms prescribed in the SCRA rules. The move is expected to result in total equity dilution of about Rs 1,60,000 crore by 179 listed companies.

A senior executive of a large investment bank said the government should simply ask companies to meet the 25 per cent public float norm by a stipulated deadline, without mandating at least five per cent stake sale annually. “That should be left to companies, so that they do it in line with the market conditions and based on their need for funds. All that the government should say is that all listed companies should have 25 per cent shareholding in three years or in five years,” the executive added.

The investment banking head of a foreign bank said the industry was of the opinion that depository receipts were public holding and the government had used this very argument while diluting stake in some public sector companies.

The bankers also say there is lack of clarity on a host of issues. “It is not clear what the penalty for non-compliance is. Similarly, it is not clear who we need to approach for an exemption. Should we go to the government or to Sebi (the Securities and Exchange Board of India)?” asked a banker.

The earlier rules had also set the minimum float at 25 per cent, but stock exchanges and Sebi had the power to waive or relax this for public sector undertakings and companies in information technology, media, entertainment and telecommunications sectors.