25% public holding may drive out IPOs

Indian primary market is likely to witness a huge flow of public issues if the government's proposal for listed companies to maintain a minimum public holding of 25 per cent is implemented, Assocham has said. "Implementation of the proposed changes in the Act will lead to a huge flow of IPOs and Follow-on offers by a large number of companies into the primary markets," Assocham President Venugopal Dhoot said. The Assocham Eco Pulse study has revealed that only two companies among Sensex and Nifty scrips satisfy the proposed criteria of 25 per cent of 'public' shareholding namely Bajaj Auto and Larsen & Toubro, which have a public shareholding of 27.7 per cent and 35.5 per cent respectively.

The average individuals' holding in Public Sector firms is 1.81 per cent, while the same in private sector is 13.56 per cent, the chamber said. The Finance Ministry had early this month proposed to maintain a minimum public holding of 25 per cent, from the existing 10 per cent, in all listed companies to reduce the scope of price manipulation on bourses. The proposed guidelines assume significance as many companies are just diluting about 10 per cent of their stake through public offers at a high premium. An analysis of Nifty and Sensex companies done by the Chamber has found out that while 94 per cent of the companies satisfy the minimum 25 per cent of non-promoter share criteria along with holdings of qualified institutional bodies, a few meet the public quota as proposed by the Finance Ministry. The study also pointed out that FIIs occupy the maximum share of non-promoter holdings, between 60-40 per cent, followed by insurance companies 20-5 per cent and between 3-1 per cent by the mutual funds. Among the Sensex firms, the average retail shareholding estimated by Assocham was at 11.89 per cent while it was 10.08 per cent among the Nifty companies. If the proposal is implemented in one go, public sector companies such as BHEL with the least percentage of public shareholding of 0.37 per cent, ONGC (1.99 per cent), NTPC (2.03 per cent) and SBI (2.86 per cent) would have to shed their promoters stake, the study revealed. Among the private sector companies, Bharti Airtel with the least percentage of individual shareholding would have to dilute 23.65 per cent of its promoter's stake. While for Maruti Suzuki and TCS, it is 2.46 per cent and 5.34 per cent respectively. The study also found that promoters of the company own over 70-80 per cent stake in most of the energy, IT and telecom companies like TCS (77.78 per cent), Wipro (79.50 per cent), Reliance Petroleum (75.38 per cent), ONGC (74.14 per cent) and NTPC (89.50 per cent).