Public holding norm relaxed drastically for PSUs

In a major relief to public sector units and also to investors from any possible flooding of floating stocks, the government on Monday exempted the listed state-run firms from the mandatory condition of 25 per cent public holding.

Instead these PSUs would have to reach a level of 10 per cent public holding in three years for remaining listed, the finance ministry said.

It may be recalled that the government had made it a must for listed companies to divest at least 25 per cent holding for the public from the promoters' stake from the prevailing norm of 10 per cent.

But within two months, the stringent condition was diluted in favour of PSUs amid fears that a host of issues, either initial or follow-on offers, could impact the divestment programme of the government.

"Every listed public sector company shall maintain public shareholding of at least 10 per cent . . . a public sector company which has public shareholding below 10 per cent on the date of the commencement of the Securities Contracts (Regulation) (SCR) Rules, 2010, shall increase its public shareholding to at least 10 per cent," the finance ministry said in its amendment to the norms, issued in June.

The finance ministry also asked listed private sector firms to increase public stake in them to 25 per cent in three years, as stipulated earlier.

"A (private sector) company shall increase its public shareholding to at least 25 per cent within a period of three years from the date of listing of the securities," the revised notification said.

Earlier in June, the government had made it mandatory for all listed companies to raise public holding to at least 25 per cent, with a minimum of at least 5 per cent stake a year by promoters to reach the threshold limit.

The amendments assume importance, since many experts have criticised the June norms, saying the market does not have the appetite for so many offers and the flurry of issues will dampen market sentiment.

"After this amendment, there will be substantial reduction on the number and amount of public issues expected to come to the market. This is a quite sensible and practical decision by the finance ministry," SMC Capitals equity head Jagannadham Thunuguntla said.

With the amendment to the regulation, there will now be 15 PSUs which will be required to meet the 10 per cent public holding norm, down from 35 which were to meet the 25 per cent norm.