Is SEBI likely to extend the public shareholding norm deadline?

Siddharth Tak and Rohit Joshi/Zee Research Group/DelhiWith the deadline to comply with minimum public shareholding norm just about 45 days away, nearly 150 companies of varying sizes are yet to comply with the stipulated norm.

The big question is whether these companies will be able to meet the deadline by then or will SEBI extend the deadline? Experts are of the opinion that many companies will miss the deadline and as a result it is highly likely that SEBI would extend the deadline further.

As per the June 2010 amendment of Securities Contract (Regulations) Act, all private companies should have a minimum of 25 percent public shareholding by June 2013. However, in case of PSU companies, minimum public shareholding norms of 10 percent are to be complied by August 2013. This means in such a scenario a company is left with only two options in hand: One option is to dilute promoter holding to meet the minimum public shareholding norms while the other is to delist the stock from bourses in India.

In February 2012, SEBI designed two new routes which can help companies to cut promoter stake to the notified levels. Offer for sale (OFS) through stock exchanges and institutional placement programme (IPP) were the two new methods introduced by SEBI to maintain promoter’s holding at the said stipulated levels.

ONGC was the first company to inaugurate the OFS window on March 1, 2012. ONGC was followed by Wipro and both these issues received a muted response at the new window.

Since inception, 35 individual companies have completed their equity offer through the OFS window on BSE. Two issues namely Linde India, Tata Teleservices (Maharashtra) are lined up for 16 May, 17 May respectively. Similarly, eight standalone companies (DLF, Godrej Properties, Godrej Industries, Prestige Estates Projects, Timken India, Mahindra Holidays & Resorts India, Thomas Cook (India), Fortis Healthcare) have completed their respective IPP issues. Furthermore, in an attempt to meet public shareholding norm, the board of Purvankara Projects has given approval to issue around 4.3 crore shares via IPP route.

Of the 150 companies yet to comply with the 2010 SEBI guideline, here is a sample list of companies who are yet to comply with the 75 percent mark: Wipro (78.28 percent), Bombay Rayon (93.15 percent), Jaypee Infratech (83.27), Oracle Financial (80.27 percent), Gillette India (88.76 percent), and Muthoot Finance (80.12 percent). Pharma major Astrazeneca’s current promoter shareholding level at BSE is 90 percent.

Commenting on the probability of complying with the minimum public shareholding norm, Sudip Bandyopadhyay, MD & CEO, Destimoney Securities, opined, “It is extremely unlikely that they will be able to meet the deadline. Many prominent companies are still in the process of reducing the shareholding but I don’t think they will be able to succeed owing to the lack of appetite among investors. In my view, Promoters will have to dilute holding in a different and innovative manner by issuing bonus shares to non- promoter shareholders.”

In sync with the view, Prakash Diwan, Chief Portfolio Strategist, Prakash Diwan`s Wealth Circle, said, “The large-cap companies will be able to meet the deadline but smaller-cap companies might struggle in diluting the promoters’ stake.”

However, Prithvi Haldea, chairman and managing director of Prime Database, who tracks primary market closely, argued, “I don’t know whether the 150 non-compliant companies will be able to meet the deadline but SEBI will definitely take substantial actions against them.”

Referring to the possibility of any extension of the deadline, Bandyopadhyay at Destimoney Securities said, “My personal feeling is there will be probably a month or two month extension but that might be announced very close to the last date. However, if SEBI relaxes this norm it will be extremely unfair on the part of those companies which have already divested.”

Bandyopadhyay’s thought got an endorsement from Diwan, who asserted, “SEBI might extend the deadline by two quarters as many companies are likely to miss the deadline.” Haldea though did not buy the proposition.