Mumbai: Going forward, listed companies may need to maintain 35% of minimum public shareholding (MPS), according to the statement by the finance minister in her maiden union budget.
"We will ask Sebi to mull a rise in MPS for listed companies from 25% to 35%," said Nirmala Sitharaman, union finance minister.
The announcement was followed by the market falling by 135 points at 11:51 am. While this move will ensure more public investing in equity markets, it will also force corporates to go on a public offering spree. This would also require the market regulator to change several regulations pertaining to public offerings. It is unclear what is the timeline the companies would need to meet, these would need to specified by Sebi in the coming months.
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This move would enhance liquidity and public say in the listed firms.
The first time the listed companies were required to have 25% of MPS was in 2013. It was raised from 10% to 25%. Sebi had created two additional avenues for raising public shareholding -- offer for sale and institutional placement. It was a major challenge for listed firms and Sebi had penalised over 100 companies for not adhering to a 25% MPS.
The public sector undertakings were given a deadline of August 2017, which was further extended to 2018, to have a 25% minimum public float. Majority of public sector firms are yet to meet the 25% MPS requirement due to lack of price discovery.
To ensure parity between public and private listed companies, government also said that it will ensure that all PSUs will ensure that have a minimum public float of 25%.