Since December 2010 (when this requirement was imposed), the market conditions have not been conducive for a follow-on public offer, challenging the ability of companies to comply with minimum public shareholding norms, says CII.
According to the minimum public shareholding norms announced by the Securities and Exchange Board of India (Sebi) in 2010, promoters of all listed companies have to bring down their stake to 75% by 2013. The deadline for private companies is June 2013 while that for public sector undertakings (PSUs) is August 2013.
According to CII, there are 148 private sector and 14 public-sector companies that would need to dilute their equity stake in order to comply with the minimum public shareholding norms by June 2013. If these companies compulsorily off-load, an aggregate amount of Rs 34,860 crore would hit the market till June 2013, said CII.
Interestingly, Sebi chairman UK Sinha has taken a stern stand on this issue, clarifying that there would be no extension in the deadline and that all listed companies private and public sector - will have to comply with the guidelines.
The companies and their advisors are perhaps thinking that this time limit will be extended. But let me tell you, that I am going to make it difficult, he had said at a seminar on April 13. This is a very important requirement. Three years time frame has been given, more than one and half years are over but there is absolutely no movement towards it, he added.
CII is of the view that share prices could come under pressure if such a large supply of paper hits the market. A mandated off-loading of shares would result in a sharp decline of share prices, thereby leading to destruction of shareholders value (including that of minority shareholders) and run against the very policy objectives this requirement seeks to meet to discover fair prices through increased liquidity, CII says.
Meanwhile, CII has also asked Sebi to relax norms for institutional placement programme (IPP) and offer for sale (OFS) that were allowed by the regulator early this year. It wants the removal of 100% up-front margin requirement while participating in an OFS and also the 12-week cooling period between two OFS transactions to be done away with.
For IPP, the industry body wants Sebi to include foreign institutional investors (FIIs) in the list of entities that can be allotted a maximum of 25% of the offering. Currently, a single insurance company or a mutual fund can be allotted one-fourth of the issue. CII also wants the qualified institutional placement (QIP) route to be allowed to divest promoter holding to comply with the public shareholding norms. CII has also said that the 25% public holding should include depository receipts and also stock option granted to employees.