The stock market watchdog Securities and Exchange Board of India may allow two years for listed companies to comply with its minimum public shareholding threshold, as proposed in the Union Budget presented by Finance Minister Nirmala Sitharaman.
The budget had called for increasing minimum public shareholding to 35% from the current 25% and this announcement spooked the markets on Friday, with both the Bombay Stock Exchange and the National Stock Exchange ending on a bearish note. This trend continued even during early trade on Monday.
The compliance and time frame will be the same for all publicly listed companies, including state-owned enterprises, Business Standard , quoting government officials, reports.
The stock market regulator will come up with a framework after consulting all stakeholders, the daily added. However, this norm may come into force immediately for new companies entering the market through initial public offerings.
This proposal is expected to improve corporate governance, curb market manipulation and help the government collect more capital gains taxes. However, it will make acquisitions costlier and some of the promoters with around 75% stake may even contemplate delisting.
At present there are over 1,400 listed companies in which promoters have over 65% stakes, as of the latest regulatory disclosures, Economic Times reports.
In the National Stock Exchange’s Nifty MNC index, there are 14 companies that may have to shed 2-10% of the promoters’ stakes to implement the new proposal. Among the Nifty50 companies, five firms, namely Wipro (73.90%), Tata Consultancy Services (72.10%), Coal India (71%), Hindustan Unilever (67.2%) and Bharti Airtel (67.1%) have promoter holding in excess of 65% as of March 31.
Among state-owned enterprises, there are 40 firms with public holding lower than 35%. Of them, 28 have not even complied with the earlier norm of 25% minimum public shareholding.