New Delhi / Mumbai: In the first sign that the Centre may rethink the new norms announced last week that make it mandatory for listed firms to have a minimum 25% public shareholding, a senior finance ministry official suggested that the government is open to altering the new rule following protests by state-owned companies.
“If there is need for correction or amplification, it will be done,” Ashok Chawla, finance secretary, said in New Delhi on Wednesday. The finance ministry had received representations from public sector units (PSUs) on the subject, he added.
The 4 June amendment to listing norms said firms with inadequate floating stock had to add at least 5% public shareholding every year until it reaches 25% of the total number of shares issued, a challenging target for state-owned firms who may find it tough to offload large chunks of equity without pushing down prices.
In addition, last week’s changes may be inconsistent with other regulatory guidelines.
“There will be an overhang of stocks in the market and pricing will have a major role to play,” said Brijesh Mehra, country, corporate and investment bank head at Royal Bank of Scotland Plc’s Indian unit.
Another investment banker, who declined to be named, said there was a lack of clarity in the legislation involved. The Friday notification clashes with Issue of Capital and Disclosure Requirements (ICDR) Regulations 2009, a Securities and Exchange Board of India (Sebi) rule.
Regulation 37 of ICDR prevents firms from selling shares within a year of having raised money from the market, something that will also have an impact on firms in the private sector such as Mahindra Holidays and Resorts India Ltd, DB Corp. Ltd and Godrej Properties Ltd. All of them have promoter holdings of at least 80% and need to hit the market again by March to comply with the listing norms. Some of the biggest PSUs such as NTPC Ltd and NMDC Ltd, which sold shares in the primary market in March, are on this list too.
“There will be a bunching together of issues and that will put pressure on pricing,” said an investment banker who declined to be named. “When there are two pieces of regulation that are contradicting each other, Sebi should step in and resolve the problem.”
One option the finance ministry has is to dilute the provisions of the listing norms by invoking the discretionary power that Sebi has been vested with by the Securities Contracts (Regulation) Rules. Section 19(7) provides Sebi with powers to exempt some firms from following certain requirements.
An analysis by Mint shows that between them, MMTC Ltd, NMDC and NTPC need to raise Rs66,097 crore (at 7 June prices) to meet the new regulatory requirement. This is well over half the combined Rs1.21 trillion state-owned units are slated to sell over the years.
In the first year, the three firms will have to sell Rs20,583 crore of shares, nearly half the Rs43,146 crore that all listed PSU firms will have to sell. This is above the Rs40,000 crore disinvestment target of the government for fiscal 2011.
The recent volatility in the equity market in the wake of the debt crisis in Greece and fears of a double-dip recession have introduced one more dimension to pricing.
According to Madhabi Puri-Buch, managing director and chief executive officer of ICICI Securities Ltd, the volatility in equities has made it necessary to offer investors a “volatility discount” to draw them into an initial public offering.
“Volatility discount sought by investors, to my mind, is valid,” Puri-Buch said at conference organized by the Confederation of Indian Industry on Wednesday. “Flexibility in terms of pricing these issues would become paramount going forward.”