New listing rules may benefit shareholders

New listing rules may benefit shareholders
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First Published: Wed, Apr 21 2010. 11 29 PM IST
Updated: Wed, Apr 21 2010. 11 29 PM IST
New Delhi: Listing norms for companies on stock exchanges will be changed in a few weeks to make sure public shareholders hold at least 25% in all companies within three years, a move which could trigger a spate of follow-on public offers by government firms.
Unlike the current situation where some firms are granted special privileges, the amended norms would have to be followed by all firms, a senior finance ministry official, who did not want to be identified, said. Currently, officials at the law ministry are going over the proposed changes to the listing norms to make sure they are in sync with other laws, he added.
The forthcoming changes are the outcome of a two-year process, which started when the finance ministry released a discussion paper on minimum listing norms. The aim of the move was to increase opportunities available to people to benefit from economic growth and the attendant impact on firms. This is the first time the ministry is mentioning a time frame for this process.
The Securities Contracts (Regulation) Rules, 1957, are being amended to enforce the new minimum listing norms.
“In the long term, this will benefit the capital market,” said D.K. Aggarwal, chairman and managing director of SMC Comtrade Ltd, part of a group with broking and distribution interests in both capital and commodity markets.
Uniform listing requirements for all companies, including state-owned ones, could trigger a lot of activity in the primary market. Last fiscal, the government aimed to raise Rs25,000 crore through disinvestment, a record for a single year. In the current fiscal, the Union Budget estimated that Rs40,000 crore would be raised through disinvestment.
The norms for minimum public shareholding would have to be followed when a company first lists its shares on a stock exchange and have to be maintained as long as its shares continue to be listed.
This move would have a positive impact on the secondary market as well, as it would eventually go on to increase the free float, which would give the market depth and liquidity, said an investment banker, who asked not to be identified.
“This will bring in more FIIs (foreign institutional investors),” the banker said.
Details on the definition of public shareholding in the proposed change in listing norms were not available. The discussion paper had said the word “public” had not been defined. Mint’s analysis showed that average “non-promoter” holding in the universe of 3,619 listed companies on 31 December was 50.19%. This included holdings of FIIs and mutual funds.
Listing norms have been calibrated over the years to achieve the aims of the government of the day. Two decades ago, companies had to offer 60% of their issued capital to get listed on a stock exchange. In September 1993, this was reduced to 25% to encourage more companies to list during the early days of full-fledged economic liberalization.
Along with changes in the percentage of minimum public holdings, rules have been designed to provide special privileges to some type of companies such as public sector units and information technology firms.
Ashwin Ramarathinam in Mumbai contributed to this story.
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First Published: Wed, Apr 21 2010. 11 29 PM IST