The finance ministry?s proposal to increase public shareholding in all listed companies to 25%, if implemented, would result in a significant capital raising of over Rs 160,000 crore from the primary market.
According to Crisil Equities, the proposed move would significantly increase liquidity in the equity markets, thereby making fair price discovery more robust, and would also enhance investor participation. However, companies would need adequate time to fulfil the above requirement as it would be difficult to raise this money from the market in short term. This could impact their market value. The finance ministry and Sebi have been contemplating increasing the public shareholding to minimum 25%. Currently, 179 listed firms have public shareholding below 25%.
Based on the current market price and the extent of promoter holding, it is estimated that these companies would raise Rs 160,000 crore if they opt for sale of shares and Rs 210,000 crore if they plan to dilute their stake by issuing fresh shares. About 82% of the estimated funds are likely to be raised by 29 listed government entities in order to adhere to the proposal.
According to Tarun Bhatia, director?capital markets? Crisil Research, ?The proposal is in line with practices followed in developed economies globally and is expected to improve the liquidity in these companies.? Over the past six years, companies have raised Rs 500-550 billion (Rs 50,000 crore-Rs 55,000 crore) annually on an average through equity issues, including IPOs.
