25% public shareholding compulsory

Public sector and infrastructure firms exempted from compulsion.

The Securities and Exchange Board of India on Friday prescribed a 25 per cent minimum free float for listed companies, except for public sector and infrastructure firms.

Explaining the move, Sebi Chairman M Damodaran told reporters that this norm would bring a higher float into the market. "However, this will be done in a non-disruptive manner," he added.

For now, companies that had entered the market after June 2001, when they were allowed to offer only 10 per cent of equities subject to some conditions on the offer size being met, are not expected to increase their public shareholding to 25 per cent in the next two years.

However, they will have to do so eventually. The road map for this will be issued by Sebi in due course. Those not complying with this norm will face penalties that may include delisting.

Firms under the purview of the Board for Industrial and Financial Reconstruction (BIFR) have also been excluded from this mandatory requirement.

"The companies that have made public offers under the mandatory 25 per cent issue norms and where public shareholdings have gone down below that level will have to increase their public holding to 25 per cent within two years," Damodaran said.

However, an additional one year will be given to those companies which fail to meet the deadline for reasons such as corporate debt restructuring.

Sebi will also announce the road map for companies that have raised funds through public offerings of only 10 per cent shares under the new norms that came into force in June 2001.

"The aim is to bring the level of public holding in listed companies to one number. This level, specified under clause-48 of the listing agreement, varied from time to time -- from 60 per cent at one time to 25 per cent later to 10 per cent since 2001," Damodaran added.

Though the minimum 10 per cent public offering norm was for all companies, firms that had made good use of the liberal regime were in the infotech sector. The norm was applicable only to companies that had a minimum capital base of Rs 100 crore.

"A move towards a higher float will enable more liquidity and facilitate greater trading in the market. This is a good move from the capital market's point of view, given the liquidity that is pouring into Indian markets now," said S Ramesh, executive director, Kotak Securities.

258 firms have 75%-plus promoter stake

At the end of June 2005, the number of companies that had promoter holdings in excess of 75 per cent was 258. If all these companies were to divest through the market, the total supply of papers would have amounted to over Rs 22,000 crore. Without technology companies, the amount would have been around Rs 12,000 crore.

Even though technology companies like Tata Consultancy Services have promoter holdings at over 84 per cent, they will be out of the ambit of the new guidelines that make only 10 per cent public offer necessary.

Wipro, which was listed before June 2001, also has promoter holding of over 75 per cent but it is not clear whether the company will have to offer additional shares to the public within two years.

In June 2001, Sebi came out with listing norms that allowed technology, media, and telecom companies to offer only 10 per cent in a public offer subject to certain conditions.

The conditions included the issue size being at least Rs 100 and an offering of at least 20 lakh shares. The issues had to be made through book-building.

According to the June 2005 shareholding pattern, Dabur India (with promoter holding of over 76 per cent), Godrej Industries (over 88 per cent), and Sterlite ( 80.6 per cent), will have to bring down the promoter stake.