Now minimum public holding deadline is inviolable for cos: SMC Global

With the SEBI deadline on minimum public share holding in listed companies less than a year away, new options offered to companies to achieve it may prompt many MNCs to reconsider any delisting plan, a leading capital market analyst has said.

Reacting to the announcement made by SEBI Chairman U.K. Sinha on Thursday for using bonus/rights issue route by companies to comply with the minimum public shareholding stake of 25 per cent by June 2013, Jagannadham Thunuguntla, Strategist & Head of Research, SMC Global Securities Ltd, said SEBI has broadened the choices available to companies to meet the deadline.

He said SEBI has added two more options — bonus and rights issue applicable to only non-promoters — to the existing avenues available such as FPOs (Follow on Public Offers), IPPs (Institutional Placement Programmes) and auction routes. But while for companies to come out with them the market conditions should be good, it was immaterial what the market conditions were for issuing bonus shares to non-promoters.

Thunuguntla said there were around 162 companies in which the promoter shareholding was higher than the limit specified by SEBI to be achieved by mid-next year. These companies would have to fall in line now.

He felt that with the new norms prescribed by SEBI, ‘many of the Indian subsidiaries (of MNCs) who were planning delisting may give up their plans’.

But this does not look so simple. Many MNCs, reluctant to reduce their own stake in their companies, have chosen to delist them by buying the outstanding minority shares from the public. Moreover, if they had the willingness to reduce their stake, then market conditions need not be a compelling factor to dissuade them.

Many MNC stocks have rallied on expectation of delisting and how they would react if the managements accept the SEBI proposal remained to be seen. Moreover, while rights issue route offers them at least opportunities to raise resources, bonus route would only lead to mere equity dilution. So, why should they choose the latter?

Summing up his response to the above queries from Business Line, Thunuguntla said the companies have various options — dilution through FPO/ IPP/auction or bonus/rights issue or delisting. What course they adopted depended on their shareholding pattern, overall corporate strategy, etc. He said “it’s quite difficult to generalise and assume which particular route companies are going to adopt.”

He said by announcing bonus issue, SEBI made it “very clear that the market conditions can’t be a reason for non-compliance any more.” It has also expressed readiness to consider on case-to-case basis companies not being able to comply with its decision for any reason. So SEBI was open to considering any genuine challenges in complying with the provisions.

Thunuguntla felt that SEBI was very clear that the deadline of June 2013 was inviolable and whether MNCs or other companies, “they have to choose their path keeping these points into account.”


(This article was published in the Business Line print edition dated August 18, 2012)
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