The government today made it a must for listed companies to raise public holding in them to 25 per cent,a move that may give investors a chance to buy stocks of big firms like IOC,DLF and Wipro at lower prices. The mandatory offloading of at least five per cent stake a year by promoters to reach the threshold limit is likely to flood the market with many offers,and the public could stand to gain both at price front as well as choice of companies for investment. According to market analysts,about 180 companies including 35 PSUs would have to offload stake to meet the new norms of 25 per cent public holding notified by the Finance Ministry. There are over 4,500 listed companies in India. The entire exercise of raising public holding,also aimed at checking share price manipulation,could necessitate fresh investment of up to Rs two lakh crore,going by the present share prices of the firms that need to dilute promoter stake. From PSUs alone,the stipulated dilution could require investment up to Rs 1.25 lakh crore,as per the current share prices,but market analysts pointed out that disinvestment in stages could see offers made at lower level. Compliance with the new rule would entail,in the first year of dilution,sale of shares priced at Rs 60,000 crore now by all listed companies. As per the share prices today,two thirds of it would be accounted for by PSUs. As such the government had set a target of raising Rs 40,000 crore from disinvestment of PSUs this fiscal,including IPOs by giants like Coal India. However,the decision would not lead to a flood of public issues,as it has been staggered by allowing only five per cent dilution each year,a top Finance Ministry official said. On the contrary,HDFC Chairman Deepak Parekh,a key financial adviser to the government,had asked for a time-bound dilution to 25 per cent level as a way to tackle over-pricing of public issues,both by corporate and government. The companies will get time of up to five years to meet the threshold limit. While most companies would need to do it in up to three years,some PSUs such as MMTC will get up to five years because of their very low public holding. While the move would provide enough liquidity in the stock markets for trading and guard against price manipulation,analysts said the investment could also put pressure on available liquidity at a time when RBI is already grappling with high inflation. "A dispersed shareholding structure is essential for sustenance of continuous market for listed securities to provide liquidity to investors and to discover fair prices. Further,the larger the number of shareholders,the less is the scope for price manipulation",the Finance Ministry said while issuing the notification. Companies seeking fresh listing would,however,have to dilute 25 per cent in one go in case the issue size is just up to Rs 4,000 crore. However,those already in the process of going public and have filed draft prospectus could disinvest stipulated 10 per cent and later meet the condition notified today. Besides IOC,DLF and Wipro,other top companies that are expected to offload promoter stake are state-owned NMDC,NTPC,SAIL,NALCO,Neyveli Lignite,OIL and private sector RPower. The new rules were announced shortly after close of stock market. The BSE benchmark Sensex,which rose by 95 points today on top of a 450-point rally in past two days,could come under pressure on Monday,analysts said. The decision on mandatory increase in public exposure of a company had been hanging fire for more than a year due to differences market regulator Sebi had with Finance Ministry. While Sebi's contention was that such broad-basing would require huge funds,which some estimates pegged at over Rs two lakh crore,the government was firm on enforcing the decision announced in the 2009-10 Budget as an effective means to check price manipulation by promoters. Parekh,who heads the Primary Market Advisory Committee of market regulator SEBI,had said last week that the increased public exposure was one of the effective ways to tackle the problem of over-pricing of public issues. "Tell me one IPO that has succeeded," he asked. The Finance Ministry had come out with a discussion paper in February 2008 and was to complete the discussion in May that year,but the same could not happen on account of divergence of views. Thereafter,Finance Minister Pranab Mukherjee came out with the proposal while presenting the 2009-10 Budget in July 2009. The argument was that larger the number of shares and the number of shareholders,the less is the scope for price manipulation. At present,most companies dilute just 10 per cent stake and the shares tend to trade at a premium. The announcement also said "If the public shareholding in a listed company falls below 25 per cent at any time,such companies shall bring public shareholding to 25 percent within a maximum period of 12 months from the date of such fall". The move is in line with practice followed in developed economies globally. While the London Stock Exchange requires 25 per cent minimum public holding,the Singapore and Hong Kong Stock Exchanges also stipulate public share holding between 12 per cent and 25 per cent. The requirement to offload equity by large number of listed companies may have implications for the disinvestment programme of the government,which has raised only Rs 1,079 crore (through SJVNL IPO) so far this fiscal as against the target of Rs 40,000 crore. Several initial and follow-on public issues of PSUs like SAIL,Coal India,Power Grid,Engineers India Limited,MMTC and Hindustan Copper are in the pipeline.
