Hardpressed to meet minimum shareholding norm

Several multinational companies (MNCs) listed on Indian stock exchanges are finding it hard to dilute promoter stake as part of the Securities and Exchange Board of India?s (Sebi) minimum public shareholding norms.

As per Capitaline and Bloomberg data, as many as 19 MNCs listed on stock exchanges have their promoter holding above 75%. While many of these companies have to offload huge amount of shares in the open market, their average daily volumes are drastically low in relation to the number of shares that have to be diluted. Fourteen out of these 19 belong to small-cap group and find it difficult to even generate daily volumes.

For instance, promoter shareholding in Hella India, an auto-ancillary company, stands at 81.85% as of December 2012. To successfully comply with Sebi?s shareholding norms, the promoters would have to dilute around 1,77,800 shares (6.85% stake) in the company. The combined average daily volume on the BSE and the NSE, however, stood at a mere 90 shares during the last one month and only 83 shares during the last three months.

Similar is the case with one of the leading abrasives manufacturer, Wendt India, whose promoter shareholding stood at 79.74% at the end of December quarter. The company has to dilute around 76,000 shares (4.74% stake), but the combined average daily volume on both the exchanges stood at 631 shares during the last three months, and 726 shares in the last one month.

Sanjay Sharma, managing director, equity capital markets, Deutsche Bank, said that top 80% in terms of volume and 20% in terms of number would be able to comply with Sebi?s shareholding norms as these companies are ?well traded, researched and highly liquid names?. The balance 80% in terms of numbers of companies and 20% in terms of value may find it difficult, not because of lack of intent, but because of small size and lack of liquidity, he says.

Only one company ? Oracle Financial Services ? falls in the large-cap group with market capitalisation of nearly R25,000 crore. Four companies ? Astrazeneca Pharma, BOC India, 3M India, and Gillette India ? fall in the mid-cap group and witness a fairly liquid market.

Market players say that due to the nearing deadline (June 2013), these companies have limited options to comply with the shareholding norms. They add that many companies may not be successful in selling shares in the secondary market due to low liquidity and interest in the company’s stock. They may be forced to sell the shares at a deep discount to the market price.

?The guidelines were issued long back. M&As is one option, but it would consume a lot of time. Another way to dilute promoter holding is to offload the shares at a price that the market thinks is right and worth investing. Let the market decide the fair value of the stock,? said K Sandeep Nayak, ED & CEO, Centrum Broking.

For instance, Elantas Beck conducted OFS of 10.7 lakh shares or 13.55% of the company’s equity early last week to comply with minimum public shareholding norms. While the auction was subscribed 1.4 times, investors were willing to buy shares at a 25-30% discount to the prevailing market price.

The scrip has plunged around 30% in the last one week after the stake sale by its parent company. The shares of Elantas Beck are currently quoting at R588.75 apiece on the BSE. In the last 52 weeks, the stock has touched a high of R2,599.95 and a low of R570.