Share buybacks may rise as MPS norms 14 months away

Written by fe Bureau | Updated: Apr 1 2012, 00:01am hrs
With just about 14 months remaining to meet the minimum public shareholding (MPS) norms, the rush to reduce stakes in companies is likely to escalate in the coming fiscal. Currently, there are about 11 PSUs in which the government holds more than 90% stake and about 110 private sector companies in which the promoters hold more than 75% stake, according to data compiled by Delhi-based brokerage SMC Global Securities.

As per the listing guidelines of MPS norms, the government companies shall have a minimum public shareholding of 10% and the private sector companies shall have a minimum public shareholding of 25%. The deadline for meeting these guidelines is 4th June 2013.

Companies have a little more flexibility in the manner in which they can bring down their stakes. Besides follow-on public offerings (FPOs) and preferential allotment, firms can now look at Institutional Placement Programme (IPPs) or the auction method for dilution. An IPP is restricted to institutional players while an auction can have participation from retail investors and high net worth individuals, among others.

These alternative modes of divestment will come in handy considering the lull in primary market activity in FY12. Nearly R24,000 crore was mopped up by way of initial public offerings (IPOs) and FPOs in FY12, almost half of R46,267 crore mobilised in the preceding year, according to data compiled by Prime Database. The amount raised would have been much lower but for the two offers for sale of ONGC and Wipro done through stock exchange auction system.

The prominent PSUs that need to divest their stakes include MMTC, HMT, National Fertilisers, Neyveli Lignite, RCF, State Bank of Mysore and STC, according to SMC Global Securities. The leading private sector companies in this list include Wipro, DLF, Reliance Power, Omaxe, Bajaj Corp, Godrej Properties, Jaypee Infra and L&T Finance.

The value of stocks that need to be diluted by 11 PSU companies works out to about R10,980 crore, according to SMC Global. On the other hand, the 110 private sector companies need to dilute stake worth about R24,250 crore. The total value of stocks to be diluted by all these companies works out to R35,230 crore.