Sebi relaxes 25% minimum public shareholding norms, deadline postponed

The Securities and Exchange Board of India (Sebi) has granted reprieve to companies from complying with the 25 per cent minimum public shareholding (MPS) norms. In a circular on Thursday, the market regulator said: “It has been decided to grant relaxation from the applicability of the October 10, 2017 circular…for listed entities for whom the deadline to comply with MPS requirements falls between March 1, 2020 and August 31, 2020.”

The October circular lays down the procedure to be followed by stock exchanges with to MPS non-compliant companies, their promoters and directors. The penal action includes fines and freezing of excess promoter holding. According to sources, companies through investment banker and industry bodies had approached the regulator seeking relaxation citing unfavorable market conditions to conduct share sales.
 

Experts said Sebi’s relaxation would also benefit companies where promoter holding had increased beyond 75 per cent because of open offers or other acquisitions.

 

According to shareholding data provided by CapitalLine, there are over 70 companies where promoter shareholding is more than 75 per cent. This list is dominated by public sector undertakings (PSUs), some of which include General Insurance Corporation of India, Hindustan Aeronautics and New India Assurance. Some private firms in the list include HDFC MF, CreditAccess Grameen and Nippon Life MF. However, many of these companies have sufficient time to bring down promoter stake. It couldn’t immediately be ascertained how many companies from the list of 70 have to comply with MPS norms before August.

Sebi rules give promoters three years from the date of listing to bring down holding to 75 per cent. If take goes past 75 per cent because of acquisitions such as open offer or delisting, promoters get one more year to bring down the stakes.

“Asking promoters to divest in the current environment is a challenge. On one hand, there may not be enough appetite from investors to buy these stakes, on the other, promoter will be wary to divest at the beaten down valuations,” said an investment banker.

 

The 25 per cent MPS norms were introduced in 2013, whereby no listed company was permitted to have more than 75 per cent promoter stake. The rules were aimed at improving liquidity and better stock price discovery by making higher float available with public. The average promoter holding in India is among the highest globally. Last year, the government had proposed to increase the minimum public float from the current 25 per cent to 35 per cent. It had met with opposition, forcing the government to drop the plan.