India Sets 25 Percent Min. Public Shareholding for Listed Companies
Jun. 7 – India’s finance ministry released revised guidelines for listed companies on Friday, stating that the companies will have to maintain minimum public shareholdings of 25 percent, up from the previous 10 percent. The government further stated that listed companies have to reach this level by increasing the public’s share in the company by at least 5 percent annually.
“Existing listed companies having less than 25 percent public holding have to reach the minimum level by annual addition of not less that 5 percent,” the Ministry of Finance said in a statement.
In order to achieve this new ratio, companies will have to either issue fresh equity to the public or promoters within the company must sell off shares; some combination of the two would also work. The government believes that these new measures will increase transparency in capital markets.
“A dispersed shareholding structure is essential for the sustenance of a continuous market for listed securities to provide liquidity to investors and to discover fair prices,” the official statement read. “Further, the larger the number of shareholders, the less is the scope for price manipulation.”
Through these new regulations, the Indian government also hopes to raise as much as Rs.400 billion (US$8.5 billion) on the way to decreasing its fiscal debt to 5.5 percent of GDP. Comparatively, India’s fiscal debt sat at 6.6 percent of GDP on Mar. 31, the end of the last fiscal year, and the country raised only Rs.235 billion (US$5 billion) from stake sales.
The changes are expected to immediately affect 183 listed companies in the country that maintain less than 25 percent in public shares, according to SMC Capitals based in New Delhi. Out of these firms, 148 are private and 35 are state-owned. DLF Ltd., Jet Airways (India), Reliance Power, Tata Communications, and Wipro Ltd. are among the prominent private enterprises that are currently below the requisite 25 percent, while Indian Oil Corp, Hindustan Copper Ltd., and Steel Authority of India Ltd. headline the government-owned contingent.
The new regulations also state that companies with a market cap over Rs.40 billion (US$853.8 million), will be allowed to go public with an initial 10 percent public shareholding, but will be required to increase public shares by at least 5 percent in order to attain the 25 percent minimum.
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