"It is a completely wrong assumption and arguments that the three year time frame given is too short a time frame" – U K Sinha.
The Indian stock market regulator, the Securities and Exchange Board of India (Sebi), has relaxed the routes for achieving Minimum Public Shareholding (MPS). The reference to MPS is as regards shares held by the public in companies listed in India. By way of two circulars, Sebi has introduced additional routes for achieving MPS and also seeks to simplify the framework for the existing routes.
The Securities Contract Regulation Rules, 1957 were amended in June 2010. The amendment mandated listed companies to have MPS of 25%. Part of the rationale in seeking this was to increase the liquidity of the stock and to make the securities less susceptible to price manipulation. Subsequently in August 2010 this requirement was changed for listed government-owned companies to 10%. These requirements are to be complied with within a period of three years: by June 2013 and August 2013, respectively.
Subsequently, and based on market feedback, a Sebi circular dated December 16 2010 amended the equity listing agreement for facilitating such compliance. Three routes were introduced: (i) further public offer; (ii) offer for sale (OFS) of shares held by promoters to public through prospectus; and (iii) offer for sale by promoters through the stock exchange,. In January 2012, the institutional placement programme (IPP) was introduced by Sebi and the equity listing agreement was accordingly amended on February 8 2012.
Only a few companies/promoters have made attempts and availed themselves of these routes. Perhaps this has driven Sebi to increase the number of routes for achieving MPS by listed companies (and its promoters).
Through a circular dated July 18 2012, the erstwhile framework for OFS through the stock exchange and institutional placement programme has been relaxed. A lower margin option of 25% can now be placed by institutional investors as against applying with an 100% upfront margin in cash. Also, promoters can make multiple sales within a shorter time period. Therefore, without waiting for 12 weeks before or after a previous offer, promoters may sell shares through the OFS or institutional placement programme mechanism, with only a gap of two weeks between two successive offers. This is also applicable to promoters who would have already offered shares through the OFS or institutional placement programme. The minimum offer size must be INR250 million (approximately $4.5 million) or such lower amount which enables the promoter to achieve a MPS of 25% in a single tranche.
By its circular dated August 29 2012, another route has been introduced by Sebi. Listed companies may now increase the public shareholding by rights issue and/or bonus issue to public shareholders with promoters/promoter group shareholders forgoing their entitlement. Also, any other method may be used after obtaining Sebi's approval. A procedure for approval is also provided in the circular.
So far companies like Wipro, Godrej Properties, ONGC and DB group (an Indian real estate player) have used the OFS and IPP routes for conducting sale of shares.
Sebi must be hoping that with such (and so many) options, it will not be required to extend the timelines for achieving the required MPS. One does hope that the market conditions become conducive enough. After all, which promoter wants to dilute at low valuations for complying with securities law?
Arunabh Choudhary and Saksham Chaturvedi
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