Many companies fail test on minimum public holding

Need to raise nearly Rs 2 lakh crore in primary markets.

BL Research Bureau

As many as 180 listed companies may have to tap investors for a cumulative sum of nearly Rs 2 lakh crore if the Ministry of Finance proposal to increase public holding in listed stocks to 25 per cent is to be implemented. This is higher than the total amount raised through IPOs and QIPs over the last three years.

Going by a Business Line analysis of promoter holdings, sectors such as power, steel, metals/mining and IT alone may be required to make offers totalling Rs 1.5 lakh crore.

PSUs first

Not surprisingly, public sector companies, with very high government shareholding, such as MMTC, NMDC, NTPC, Hindustan Copper and SAIL top the list of companies that may have to make offers to expand public holding in their respective entities. Others such as Wipro, Reliance Power, Jaiprakash Power Ventures and DLF may also have to come up with significant fresh issues.

The term public holding is assumed to cover shares that are not held by promoter and promoter group. The above companies had promoter holding of 75 to 99 per cent.

Diversify public holding

The Finance Minister, in his 2009 Budget speech, had indicated that public shareholding in listed companies must be increased to develop a ‘deep non-manipulable market'. The Ministry of Finance has since been considering increasing minimum public shareholding in listed entities to 25 per cent. This can be done by promoters offering to sell a part of their stake to the public or by expanding the capital base through fresh shares so that the promoter's stake is reduced to 75 per cent.

Phased dilution

A recent Crisil study on this subject has pointed out that companies have two alternatives to raise money — they may need to raise as much as Rs 1.6 lakh crore if promoters opt to sell existing shares or raise Rs 2.1 lakh crore if they dilute their stake through fresh issues.

The sums involved are so large it could be between three-four times the Rs 53,400 crore raised by India Inc through IPOs and QIPs in 2009. The offer value would be about 3.5 per cent the current market capitalisation of stocks traded in the Indian bourses.

While the thought of all those IPOs hitting the market may seem difficult to digest today, the proposal could well be implemented in a phased programme to ensure that there is sufficient liquidity in the market. The SEBI is also said to have requested the Finance Ministry for a phased implementation and also provide some relief to companies that come out with a public offer for the first time.