Opinion Will Sebi enforce higher public float?
In another five weeks the deadline set by the Securities and Exchange Board of India for listed companies to achieve at least a 25 per cent public float will become a rule.
In another five weeks the deadline set by the Securities and Exchange Board of India for listed companies to achieve at least a 25 per cent public float will become a rule. The options from here are then three; either the companies with less than the minimum float make an offer for sale to increase their public holding or take a wager that the regulator will extend the time line. If they feel a larger float is unacceptable they can delist.
For Sebi in the 25th year of its existence the options are less. It can read the riot act to the listed companies and ask them to get on with it or it could back down extending the deadline. If it does the latter Sebi would have revived the perception that it is still not willing to discipline promoters fully. This is bound to be read adversely by the investors.
Within the past six months investors have had a bad experience with the delisting business of Saint Gobain and in Fresenius Kabi. The non-institutional investors felt the companies were moving the cheese in both cases trying to cut the prices they would offer.
Both cases not surprisingly,have emerged on the surveillance radar of Sebi and since both are multi-nationals the pressure to be seen even handed will be larger on the regulator. Sure there have also been cases where retail made profit like in Alfa Laval,but the bad experience will rankle more.
Do the current market conditions discourage many companies to raise fresh capital,now? But the Sebi deadline is not a recent phenomena having been set more than a year ago. The reluctance of some promoters now to offer an additional float is quite similar to the reluctance they showed in converting their foreign currency convertible bonds into shares a couple of years ago.
The companies had then petitioned the RBI to extend the tenor of the bonds on the same plea that the markets were tepid and would dilute holdings at low prices,post the conversion. The same argument is at work here. RBI data shows the spike in large debt issues abroad in the last one year,which means companies are more willing to raise funds without relinquishing control even at the cost of creating an excessive debt-equity ratio.
Latest Sebi statistics show that more than three-fourths of the turnover in the cash segment of NSE and BSE is accounted for by the top 100 companies. It is even more skewed,as the top 50 companies account for 60 per cent of the turnover making the market extremely thin. Raising public float for the rest is then a financial inclusion idea which cannot be postponed.
Subhomoy is a Deputy Editor based in New Delhi.
subhomoy.bhattacharjee@expressindia.com
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