Flood of equity issues from April next

NEW DELHI: The finance ministry has firmed up details of its budget announcement that listed companies will have to achieve at least 25% public holding in a phased manner, opening up the possibility of a plethora of equity offerings from such firms.

Beginning April 1, 2010, those companies falling short of the set target would have to divest at least 5% stake within a year and a similar amount in the following year till they reach the threshold prescribed, a finance ministry official told ET. Information technology and infrastructure would be impacted the most as they had been allowed to list with only 10% public float.

According to government estimates, the value of the total shares that will come to the market in the next few years due to the new stipulation is about Rs 1,50,000 crore at July prices. According to Naresh Kothari, president, Edleweiss Capital, the gradual dilution of promoter holding by 5% a year will not have any significant negative impact on the share price considering the robust investor appetite in the market. Every year, domestic institutional investors pump in about $20-25 billion and foreign institutional investors bring in about $10-15 billion, said Mr Kothari.

Though the ministry will implement the public shareholding requirement from the beginning of the next fiscal year, companies will not be queried before the end of the next fiscal year on any progress made on this count. The idea is to give them time for their stake dilution at the most opportune time depending on market conditions. Regulatory action on non-compliant companies will be taken only after the five-year transition period. The official, however, did not disclose the nature of this regulatory action.

The government���s disinvestment programme is independent of these norms and state-run companies have also to keep in mind the schedule for compliance with the listing norms. The official said public holding is very low ��� less than 2% ��� only in the case of five out of 14 public sector companies that are listed with less than 10% public shareholding.

Companies can either issue fresh equity or offer sale of promoters��� holding to comply with this requirement.

���Individual companies would chose to issue fresh equity or offer promoter���s stake depending on their financial need. In the case of government, it could be sale of promoter���s stake as the government is in need of funds,��� said KPMG executive director Girish Vanvari.

Companies have to disclose their latest shareholding pattern with the stock exchange every quarter. This gives the government and the capital market regulator a chance to keep a close watch on whether companies are taking steps to comply with the new norm.

Now, the regulatory action against companies that stay listed with less than the required public float is slack because many government companies themselves have low public stake.