Listed firms must now have 25% public shareholding

In a big bang move aimed at bringing in more accountability and enhancing investor participation,the government on Friday made it mandatory for all listed companies,including public sector companies,to raise public shareholding to 25 per cent. The decision will result in mobilisation of nearly Rs 160,000 crore from the market,out of which about 82 per cent around Rs 128,000 crore is likely to be raised by 29 listed government entities.

For the government,which is looking for new sources of revenue generation,this will be a good opportunity to garner funds and reduce fiscal deficit. On the other hand,analysts fear the decision will put pressure on share prices and the liquidity situation,as a huge amount of money will be raised from the market and equity will be offloaded to the public.

Amending the Securities Contracts (Regulation) Rules,the government said that listed companies with less than 25 per cent public holding will be required to reach the stipulated level by enhancing public holding by a minimum 5 per cent annually. For instance,a company with 15 per cent public float would be given a maximum of two years to reach the 25 per cent threshold,thus cushioning the impact of the new requirement on liquidity and share prices. However,companies may be allowed to issue more than 5 per cent shares,if suitable.

The new rule assumes significance as companies were diluting about 10 per cent the minimum requirement now of their stake through public offers at a high premium. PSUs were so far exempt from the minimum public holding requirement.