The Securities and Exchange Board of India (Sebi) is likely to defer the Budget proposal of raising minimum public shareholding in listed companies to 35 per cent, said a person with knowledge of the matter.
Union Finance Minister Nirmala Sitharaman (pictured) had announced the proposal to raise the minimum public shareholding to 35 per cent from 25 per cent, in her Budget speech. The government was of the view that a higher float would limit market manipulation, promote equity culture, and improve tax mobilisation through capital gains.
The market regulator is learnt to have received suggestions, including from its expert panel of primary markets, saying this is not the appropriate time to widen the public float.
“The regulator has apprised the board about the viewpoints of market participants and experts who are not in favour,” said the person cited above.
People in the know said the Primary Market Advisory Committee (PMAC) unanimously decided to postpone this “disruptive” proposal until more research and impact analysis was done, like what was done before the 25 per cent mandate. The panel felt that this could lead to issuance of millions of shares that may not have many takers.
An estimation says increase in the public float could result in firms offering approximately 1 trillion shares, currently owned by promoters, to the public. Further, whenever this proposal is implemented, there should be at least 3 years given to companies and the concept of minimum float by amount should also be introduced, the panel is learnt to have said.
The Sebi panel also said more than half the PSUs are yet to fulfill the 25 per cent minimum public shareholding norms, and have been seeking deadline extensions.
“Globally, there is no precedent for a 35 per cent minimum public float. It ranges from 15-25 per cent in most countries. In the US, the criterion is not a percentage but the size of the free float based on the number of shares and amount,” said Prithvi Haldea, founder, Prime Database. He is a member of the PMAC.
Citing an example of Tata Consultancy Services, Haldea said the new rule could force the IT giant to issue the additional shares aggregating Rs 60,000 crore. For companies listed on the NSE, an additional huge stock of about Rs 3.43 trillion would flood the market.
“I wish a thorough think-through and consultation with Sebi had been done before such a high impact announcement,” Haldea added.
Another panel member of the committee said there may be several benefits of large floats such as more liquidity, better price discovery, less market manipulation and better corporate governance.
However, it could also make acquisitions costly, as buyers who breach the 65 per cent promoter holding might be forced to again offload shares in the market.