Private promoters also deserve some time

On June 4 2010, when then finance minister Pranab Mukherjee announced the minimum public shareholding norms, the world was a different place. The worst seemed to have been over and the Sensex was on its way to a new high. The original plan seemed very fair. All companies had to bring up public shareholding to 25 per cent and they had to do it gradually by selling five per cent or more every year.

Then, the rollback came. The government, also the largest promoter, sweetened the deal for itself in August 2010 saying it had to sell only 10 per cent to meet the norms. Some short-sighted lobbying targeted at disinvestment proceeds led to this move, I doubt. As a consolation, the five per cent per year dilution norm was struck off for everyone. This is also reason for today's situation, where scores of companies are caught with millions of shares to sell in the next four sessions.

It is beyond my understanding how these state-owned companies remain listed at all with floats less than what is required for an initial public offering (IPO). Defying all logic and regulations they continue to trade, some at absurd prices.

And, it is not that these companies are temples of virtue that they can do good with lesser public holding. Government ministries run them like their own fiefdoms with little regard for minority shareholder concerns. Even a public naming and shaming by UK-based hedge fund TCI did not change the state of affairs at Coal India. When the notification relaxing the requirements for PSUs came, reports said there were 15 companies, which needed to comply. A report by Kotak Institutional Equities last week said 12 of these are yet to comply. They have two months extra to comply because their deadline is counted from the notification of the roll back. You know what will happen at the end of it.

On the other hand, a significant number of private sector companies have complied with the norms and several others have made attempts. The Sensex has gone nowhere in three years. It is still below the 21,000-mark it hit on Diwali of 2010. In December 2010, foreign institutional investors (FIIs) brought in Rs 2,049 crore. The entire 2011 was forgettable with net FII outflows of Rs 2,714 crore, which depressed stock prices to pre-2007 levels. Even if people were ready to sell, there was not enough demand. In March 2012, when Wipro promoters tried the offer for sale route, they could sell only half of the shares they intended to. Eventually, the Bangalore Tiger huffed and puffed to compliance through a demerger-cum-transfer to an independent trust. If this was the state of a blue chip, the Securities and Exchange Board of India can afford to show some sympathy to lesser ones. The punishment list goes something like, delisting / suspension from trading / a fine of up to Rs 25 crore. If you take out the first two as anti-minority moves, you are left with fines. Will the promoters be too worried to let go a few crores for a few hundred crores at stake?

All I am trying to say is that the June 3 date should not be something cast in stone. It's not that good governance is going to be born next morning. If the government can get away with so much of lenience, it would be only fair that the private promoters are at least given some more time to comply. A couple of quarters more wouldn't be asking for too much.