The Finance Ministry has announced its budget-promised amendment to the listing rules for all public companies.
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 reach the 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 is more than Rs. 4000 crore, the company may be allowed to go public with 10% public shareholding and comply with the 25% public shareholding requirement by increasing its public shareholding by at least 5% per annum.
d) For companies whose draft offer document is pending with Securities and Exchange Board of India on or before these amendments are required to comply with 25% public shareholding 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 such increase 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 initial listing.
g) Every listed company shall maintain public shareholding of at least 25%. If the public shareholding in a listed company falls below 25% at any time, such company shall bring the public shareholding to 25% within a maximum period of 12 months from the date of such fall.
People are saying this will be negative for the markets, but it will only hurt certain companies. The likes of DLF where promoters own more than 80% – and they only have to sell 5% every year. And the public sector giants like MMTC and NMDC where the government holds 90% or more; these stocks will and should fall, either now or when they actually decide to sell 5% at a time.
I need to do a detailed analysis on which shares get impacted the most. These are likely to be weak – but a better way to do the research is to see which stocks are the maximum hit on Monday morning, since someone else is bound to have done this research. I’m just being lazy.
I think I’ll test my coding skills by writing a tool to download shareholding patterns of all NSE companies and putting them into a database, then running a query across all companies to get this data. A few hours of work but will be so useful in future.
Note: “Public” shareholding is anything that is not owned by a “promoter group”. It includes FIIs, mutual funds, insurance companies and so on.