Business standard 2-5-2012

Companies askgovtto relax25% public shareholding deadline

SANTOSH TIWARI New Delhi, 1 May With the Securities and Exchange Board of India (Sebi) talking tough on enforcing the 25 per cent shareholding deadline, companies facing the heat have started turning to the finance ministry for an extension. Senior finance ministry officials confirmed the development but strongly declined the possibility of extension in the deadline at this juncture. “The decision is a carefully thought out one and it will improve participation in the market. We have told this to the companies which have approached us for relaxing the deadline,” said a senior ministry official. The companies know the government could relax the deadline. Hence, they are approaching the ministry, said another official. “The government fixed the deadline in consultation with Sebi under the Securities Contract Regulation Act (SCRA) provisions and, technically, it can relax the same,” he added. In June 2010, the government had amended the Securities Contract (Regulations) Act rules, by ordering all listed companies to have a minimum of 25 per cent public shareholding. It has set a deadline of June 2013 for all private sector companies and August 2013 for all PSUs to meet these norms. But, even after almost two years, very few companies have tried to comply with the norm. Sebi Chairman U K Sinha has publicly expressed the regulator’s disapproval of any relaxation in the deadline. In fact, in the case of public sector companies, he has written to Cabinet Secretary Ajit Kumar Seth for enforcing it. Among the top public sector companies in terms of promoter holdings, government holding in Coal India is 90 per cent, NTPC 84.5 per cent, MMTC 99.3 per cent, NMDC 90 per cent and Indian Oil 78.9 per cent. Currently, 181 companies from the private sector and 16 public sector undertakings (PSU) have promoter holdings of more than 75 per cent. These entities will have to sell shares worth a cumulative ~40,000 crore by August 2013 to meet the public shareholding norm. The companies have argued that in the current sluggish market situation, they will not get the right valuation if they tried to meet the requirement. Some market experts are also of the view that with a disinvestment target of ~30,000 crore, the additional supply of ~40,000 crore worth of equity would be difficult for the market to digest. The Chairman and Managing Director of Prime Database, Prithvi Haldea, however, doesn’t think this will be a problem. “Market conditions, quality of company coming into the market and price are the three important factors. The problem is not liquidity; it is the quality and price, which will play a crucial role,” he said. Haldea further said the government should show seriousness about strict implementation of the 25 per cent public shareholding norm. “For the companies and market to accept the government directive on 25 per cent public shareholding seriously, the government must announce a penalty for those not meeting the deadline,” he stressed. FinMin officials toe Sebi line, say it’s a carefully thought step to improve market participation Sebi Chairman UKSinha has publiclyexpressed the regulator’s disapproval of any relaxation in the deadline