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Govt issues 25% mandatory public float rule for listed companies

Jun 5, 2010SEBI- Press Release issued by Ministry of FinanceGovt Raises Threshold for Public Shareholding in Listed Companies All ListedCompanies Required to Maintain 25% Public Holding

The Government has made amendments to the Securities Contracts (Regulation) Rules.

The salient features of the amendment are as follows:

a) The minimum threshold level of public holding will be 25% for all listed companies.

b) Existing listed companies having less than 25% public holding have to reachthe minimum 25% level by an annual addition of not less than 5% to public holding.

c) For new listing, if the post issue capital of the company calculated at offer price ismore than Rs. 4000 crore, the company may be allowed to go public with 10% publicshareholding and comply with the 25% public shareholding requirement by increasing itspublic shareholding by at least 5% per annum.

d) For companies whose draft offer document is pending with Securities and ExchangeBoard of India on or before these amendments are required to comply with 25% publicshareholding requirement by increasing its public shareholding by at least 5% per annum,irrespective of the amount of post issue capital of the company calculated at offer price.

e) A company may increase its public shareholding by less than 5% in a year if suchincrease brings its public shareholding to the level of 25% in that year.

f) The requirement for continuous listing will be the same as the conditions for initiallisting.

g) Every listed company shall maintain public shareholding of at least 25%. If thepublic shareholding in a listed company falls below 25% at any time, such company shallbring the public shareholding to 25% within a maximum period of 12 months from thedate of such fall.

The Securities Contracts (Regulation) Rules 1957 provide for the requirements which haveto be satisfied by companies for the purpose of getting their securities listed on any stockexchange in India. A dispersed shareholding structure is essential for the sustenance of acontinuous market for listed securities to provide liquidity to the investors and to discoverfair prices. Further, the larger the number of shareholders, the less is the scope for pricemanipulation. Accordingly, the Finance Minister in his Budget speech for 2009-10, inter-

alia, proposed to raise the threshold for non- promoter, public shareholding for all listedcompanies. To implement the Budget announcement the Securities Contracts(Regulation) (Amendment) Rules, 2010 have been notified today.

The government today made it mandatory for all listed companies to have a minimumpublic float of 25 per cent. Those below this level will have to get there by an annualaddition of at least 5 per cent to public holding. The move, was expected to result in equitydilution of about Rs 1, 60,000 crore by 179 listed companies. These include ReliancePower, Wipro, Indian Oil Corporation, DLF and Tata Communications.

Nifty 50free-

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Companies float %

Power Grid 13.64

SAIL 14.18

Reliance Power 15.22

NTPC 15.50

Wipro 20.48

DLF 21.36

As per shareholding pattern for March 10

The minimum threshold level of public holding will be 25 per cent for all listedcompanies, the finance ministry said in a statement, after notifying the SecuritiesContracts (Regulation) (Amendment) Rules, which describe requirements to be met bycompanies for getting their shares listed on stock exchanges.

According to the notification, public will not include the promoter, promoter group,subsidiaries and associates of a company. Public shareholding will mean equity shares ofthe company held by the public and not the shares held by the custodian againstdepository receipts issued overseas.

No exception now:-

Finance minister Pranab Mukherjee in his Budget speech for 2009-10 had proposed toraise the threshold for non-promoter, public shareholding. The rules till now had also setthe minimum float at 25 per cent, but stock exchanges and the Securities and ExchangeBoard of India (Sebi) had the power to waive or relax this for public sector undertakingsand companies in the information technology, media, entertainment andtelecommunications sectors. This leeway has been ended.

A dispersed shareholding structure is essential for the sustenance of a continuous market

for listed securities, to provide liquidity to the investors and to discover fair prices.Further, the larger the number of shareholders, the less is the scope for pricemanipulation, the ministry said in the statement today. The requirement for continuouslisting will be the same as the conditions for initial listing.

New listing:-

For new listing, if the post-issue capital of the company calculated at offer price is morethan Rs 4,000 crore, it may be allowed to go public with 10 per cent public shareholdingand comply with the 25 per cent public shareholding requirement by increasing the publicfloat by 5 per cent annually.

This rule, however, does not apply to companies whose draft offer document was alreadypending with Sebi. Such companies, irrespective of the amount of post-issue capital, arerequired to comply with the 25 per cent norm by increasing the public shareholding by atleast 5 per cent every year.

A company can increase its public shareholding by less than 5 per cent in a year if suchincrease brings its public shareholding to the level of 25 per cent in that year. If the publicshareholding in a listed company falls below 25 per cent at any time, the company willhave to bring the public shareholding to 25 per cent within 12 months from the date ofsuch fall, compared with the two years allowed at present.

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