Amendment to public shareholding requirement

Press Release [F.No. 5/35/2006-CM], dated 4-6-2010

The Securities Contracts (Regulation) Rules 1957 provide for the requirements which have to be satisfied by companies for the purpose of getting their securities listed on any stock exchange in India. A dispersed shareholding structure is essential for the sustenance of a continuous market for listed securities to provide liquidity to the investors and to discover fair prices. Further, the larger the number of shareholders, the less is the scope for price manipulation. Accordingly, the Finance Minister in his Budget speech for 2009-10, inter-alia, proposed to raise the threshold for non- promoter, public shareholding for all listed companies. To implement the Budget announcement the Securities Contracts (Regulation) (Amendment) Rules, 2010 has been notified today. 

2. The salient features of the amendment are as follows: 

a) The minimum threshold level of public holding will be 25% for all listed companies. 

b) Existing listed companies having less than 25% public holding have to reach the minimum 25% level by an annual addition of not less than 5% to public holding. 

c) For new listing, if the post issue capital of the company calculated at offer price is more than Rs. 4000 crore, the company may be allowed to go public with 10% public shareholding and comply with the 25% public shareholding requirement by increasing its public shareholding by at least 5% per annum. 

d) For companies whose draft offer document is pending with Securities and Exchange Board of India on or before these amendments are required to comply with 25% public shareholding requirement by increasing its public shareholding by at least 5% per annum, irrespective of the amount of post issue capital of the company calculated at offer price. 

e) A company may increase its public shareholding by less than 5% in a year if such increase brings its public shareholding to the level of 25% in that year. 

f) The requirement for continuous listing will be the same as the conditions for initial listing. 

g) Every listed company shall maintain public shareholding of at least 25%. If the public shareholding in a listed company falls below 25% at any time, such company shall bring the public shareholding to 25% within a maximum period of 12 months from the date of such fall. 


Delisting if 25% float clause violated 

Penalties Exist But Have Been Strengthened By Being Made Part Of Securities Act 

Companies failing to comply with the minimum public holding norm could face delisting, suspension of trading or a fine of Rs 25 crore. The existing provisions that deal with listing norm violations will continue to be in effect. But these provisions will be more effective now with them getting incorporated in the Securities Contracts (Regulation) Rules, say company law experts. The government last Friday notified changes to the rules making it mandatory for listing companies to have 25% public shareholding. The move is in line with an announcement made by finance minister Pranab Mukherjee in his 2009-10 budget speech. Market regulator Sebi may resort to provisions akin to those govern violation of the takeover code a fine of Rs 25 crore if stock exchanges seek invocation of such a provision. Stock exchanges will have to be stringent to ensure the implementation of new guidelines as the listing criterion is a part of the Rules and Sebi and stock exchanges can take strict action to ensure its compliance, said Preeti Malhotra, former president of the Institute of Company Secretaries of India.

These norms, so far, were part of the listing agreement of stock exchanges. Typically companies give an undertaking to stock exchanges that they will comply with the norms in six months, but do not adhere to it in some cases. As per the new norms every listed company shall maintain public shareholding of at least 25%.If the public shareholding in a listed company falls below 25% then the company is required to bring to the threshold within 12 months. The Bombay Stock Exchange benchmark, Sensex, closed over 300 points down on the first day of trading after the announcement of the new rule, but analysts attribute the negative sentiment to renewed concerns over the debt crisis in Europe.
It was announced in the budget. This has been operationalised and in the medium-term and longterm it would be for the better health of the capital market, said Finance Secretary Ashok Chawla.

The guidelines announced on Friday say companies with a market cap of over Rs 4,000 crore will be allowed to go public with 10% public shareholding. However, such companies will have to comply with the 25% public shareholding requirement by increasing its public float by at least 5% per annum.

According to a report by securities research firm Edelweiss,156 companies have promoter holdings of more than 75%.Dilution of promoters stake in these companies will release shares worth around Rs 1,50,000 crore in the next five years. Eight staterun firms alone would see equity dilution to the tune of Rs 1,00,000 crore, the study shows.