Mumbai: Finance minister Nirmala Sitharaman's proposal to increase the minimum level of public shareholding in listed companies could be a cause for concern, according to analysts. Companies may need to maintain 35% minimum public shareholding.
Yogesh Chande, partner, Shardul Amarchand Mangaldas & Co, said it will potentially be a concern for several listed companies with promoter shareholding at around 75%, especially MNCs. “Promoters of such companies may want to explore options to delist such companies, unless they are fine with increasing the public shareholding by another 10%. At 65% promoter shareholding, it will also be an additional hurdle to be crossed by a promoter, if a promoter was to attempt delisting i.e. reaching 90% through the book building route from 65%, than from 75%.," he said.
He added that the number of "OFS through stock exchange mechanism" will perhaps increase to dilute the promoter shareholding from 75% to 65%, as it is one of the fastest and cheapest way to dilute promoters shareholding, compared to other methods.
However, Chande feels that increasing the threshold will ensure wider ownership through institutional investors, more market depth, better price discovery and hopefully will enhance the corporate governance standards.
Amar Ambani, president and research head, YES Securities, said the increase in public shareholding proposed from 25% to 35% is potential negative for MNC and companies with high promoter holding. “In many mid and small caps, it is better to have more promoter skin in the game, since India's capital market is in the developing phase. Many MNCs listed on Indian bourses may consider delisting, if increase in public shareholding is implemented."
Ambani added that if increased public shareholding norm was implemented, supply of paper in the market will increase. That may mean that money will be sucked out of secondary market and valuations will remain under check.