Listed companies must have at least 25% public holding

In a major decision, the Union finance ministry stipulated that listed companies must have at least 25% public holding. The decision will force several giants to tap the stock market to dilute the promoters’ holdings to the stipulated 75% level. According to some estimates, total money raised through this route could amount to Rs 2.10 lakh crore over the next few years. There could be public issues worth Rs 60,000 crore this year itself, with government-owned companies accounting for Rs 40,000 crore. Companies are required to reach the 25% level by adding at least 5% to the public holding every year. For example, a company with 10% public holding will have to make it 15%, then 20% and finally 25% over three years. The new norm is expected to improve availability of shares for trading in the and make it tougher to manipulate share prices. “A dispersed shareholding structure is essential for the sustenance of a continuous market for listed securities to provide liquidity to investors and to discover fair prices,’’ the ministry said in a statement. Finance minister Pranab Mukherjee had proposed the move in his 2009-10 Union Budget speech. The government has now amended the Securities Contracts (Regulation) Rules to implement the proposal. Interestingly, several public sector majors like MMTC, NTPC, NMDC, SAIL, Hindustan Copper, Nalco, State Trading Corporation and IOC will be among those which will have to approach the market to issue fresh shares or to let the government divest its stake in the companies. Several private-sector companies like Wipro, Reliance Power, Essar Oil, Jet Airways and DLF, among others, will also have to tap the markets to bring the public holding up to 25%. According to a report by rating agency Crisil, there are a total of 179 listed companies with a public holding of less than 25%, of which 29 are owned by the government.