Creeping acquisition up to 75% to stay

NEW DELHI: In a move that would cheer promoters of listed companies, the government and capital market regulator SEBI have decided against rolling back a temporary measure taken in 2008 October allowing promoters with 51% or more to raise their stake to 75%.

Last year���s decision, which allowed promoters to express confidence in their companies by buying more shares from a falling market, was due for a review later this year. Not rolling back this crisis management step has implications on how the government and SEBI will go ahead with their plan to stipulate that companies can remain listed only if public shareholders own at least 25% in a company���a proposal that finance minister Pranab Mukherjee highlighted in this year���s budget speech.

If promoters own up to 75%, certain classes of investors such as foreign institutional investors (FIIs), mutual funds (MFs), employees, non-resident Indians (NRIs)/overseas corporate bodies and private corporate bodies will jostle with retail investors for the remaining 25% in companies along with retail investors. In a discussion paper last year, the government had drawn attention on the need for excluding these classes of investors from the definition of ���public shareholders.��� The government expressed concern that if these entities are counted as public shareholders, then floating stock may become insignificant.

Besides, ordinary retail investors would get lesser opportunity to take part in the fortunes of the corporate sector. Now, the government has decided not to change the definition of public shareholding in a haste. Therefore, when the government notifies the continued public holding requirements later this year, the required 25% could be jointly owned by retail investors as well as financial institutions.

���Financial institutions would be counted as public shareholders, except in cases where they themselves are promoters of companies,��� a highly-placed regulatory official, who asked not to be named, told ET.

The finance ministry and SEBI will also give sufficient time for promoters to be prepared for the new regime where companies would face de-listing from stock exchanges if public ownership falls below 25% consistently. The authorities will give a ���preparatory time��� initially and then a ���transition period��� for promoters to implement the minimum 25% public float. ���That is, the transition period for the new regime would start only from a particular date in the future to be specified in the order prescribing the new mandatory public float,��� explained the official.