Raising the stakes

Updated: Nov 29 2006, 07:22am hrs
This refers to the article Raising the threshold (Nov. 15) by Prithvi Haldea. Haldea has detailed several reasons why promoters wanted a lower percentage of capital to be issued in an IP but has missed an important one. After liberalisation and the eclipse of FIs, when hostile takeovers became imminent, promoters wanted to protect their interests. What better way than to limit the size of non-promoter holdings. Since the magic figure for taking over a company in this country is 26%, by limiting the size of public holding to 10% or even 25%, takeovers are only in textbooks and regulations.

Haldea has recommended 25%. This is below the magic 26%. An increase in public holding is always countered with a view that investors are there to invest and not to run or take over the company. However, a promoter will take real care of his shareholders only when he knows that they have enough shares that they can sell if they are not satisfied with him, to someone else.

The rules for a public offering were as high as 60% at one time. Then, promoters were brave because they could always buy benami (no demat at that time) and institutions were always in cahoots with them. But then if a public issue has to be at least 25%, what would be the resultant index Mr Haldea has not stated his views on what the "public" holding in PSUs should be. Should it not be as high if not higher than the private sector

TR Ramaswami