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

While it was for companies to choose the option, he felt that market conditions could no more be touted as a reason by companies for not diluting their stake.

Commenting on the SEBI Chairman U.K. Sinha's announcement on Thursday for companies to use the bonus/rights issue route 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, New Delhi, 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 only to non-promoters — to the existing avenues available, including FPOs (Follow-on Public Offers), IPPs (Institutional Placement Programmes) and the auction route. 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 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 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 stakes 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 expectations of delisting and how they would react if the managements accept the SEBI proposal remained to be seen. Moreover, while the rights issue route at least offered them opportunities to raise resources, the 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 the 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 route companies are going to adopt”.

He said by announcing the 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 its readiness to consider on a 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 clear that the deadline of June 2013 was inviolable and whether MNCs or other companies, “they have to choose their path taking these points into account”.

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