With the new policy that listed companies should have at least 25% public float, the 35 MNCs listed on Indian bourses who don?t meet this requirement have two options?to either bring down the promoter holding in phases to 75% or to go for de-listing. The prominent companies which have less than 25% public shareholding are Astrazeneca Pharma, Alfa Laval (I), Atlas Copco (I), Avery India, BOC India, Blue Dart Express, Daewoo Motors, Foseco India, Gillette India, Hind Powerplus, Kennametal India and Thomas Cook(I).
What is interesting is that MNCs which have low non-promoters? holdings are not performing well. The non- promoter holdings of Astrazeneca Pharma is only 10%, while its net profit decreased by 22% to Rs 57.62 crore, as on December, 2009, from Rs 73.84 crore on December, 2008. The company?s sales rose by 13.5% during the same period.
Similarly, Foseco India, with 13.52% non-promoters holding painted a dismal picture during 2009-10. The growth of sales and net profit was -20% and -14.9%, respectively during 2009-10.
On the other hand, 3M India, with 23.99% promoters? holding, painted a bright picture during 2009-10. The net profit of the company increased by 61.6% to Rs 92.84 crore during 2009-10, compared to Rs 57.45 crore during 2008-09.
The sales of the company increased by 46.3% during the period. A similar case is that of Cambridge Solution. The sales and net profit growth of the company stood at18.3% and 77.5%, respectively, during 2009-10.
All companies filing draft prospectus with the Sebi would need to dilute at least 25% stake in initial public offerings (IPOs) if the issue size is up to Rs 4,000 crore. For issues of over Rs 4,000 crore, the issue can be for 10% of the equity shares. However, it would need to be increased to 25% by divesting an additional 5% for 3 subsequent years. It would be worth watching what the 34 MNCs would do to comply with the new policy. They have the option of off-loading the promoters? holding to bring it down to 75%. They can do this either through FPOs/QIP/ADR/ GDR/stake sale in the open market (or) a combination of these. If they don?t wish to offload the promoters? holding, they may choose to delist their companies from the Indian Stock exchanges.Earlier too, many MNCs, like Cadbury etc, were delisted from bourses.
Considering the nature of the MNCs, their foreign parent companies may not be willing to offload their stakes. They may probably choose the delisting route instead.
Jagannadham Thunug-untla, equity head, SMC Capitals said, ? Probably, after the guidelines regarding the minimum public shareholding, the Indian capital markets may need to get ready to bid farewell to some of these prestigeous global companies through delistings.? This suggest that companies which have more non-promoters? holding do better in their performance compared to companies which have lower non-promoters? holding.
According to the new rules announced by the finance ministry last week, if a company has less than 25% public float, it would have to offload 5% of its shares every year till it reaches the threshold of 25% public shareholding. Since the current minimum public shareholding is 10% for most companies, this effectively means that the companies have a minimum of 3 years to comply with this rule (maximum of 5 years for PSUs).
