Budget 2019: Promoters grip to ease in listed companies, public may have greater control; proposal with SEBI

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Updated: Jul 05, 2019 1:02 PM

Union Budget 2019-20: Finance Minister Nirmala Sitharaman said the government would consider increasing public shareholding to 35 per cent from the current shareholding of 25 per cent, in a move that may flood the markets with new equity.

Budget 2019-20: The government to consider increasing public shareholding to 35 per cent from the current shareholding of 25 per cent in listed companies.

Union Budget 2019: Finance Minister Nirmala Sitharaman in her maiden Budget 2019-20 in the second tenure of Narendra Modi government said the government would consider increasing public shareholding to 35 per cent from the current shareholding of 25 per cent, in a move that may flood the markets with new equity. The minister said the government has asked the market regulator Securities and Exchange Board of India or SEBI to raise the shareholding limit to 35 per cent from 25 per cent.

“It’s the right time to consider increasing the minimum public shareholding in listed companies. I have asked SEBI to consider raising the current threshold of 25 per cent to 35 per cent,” Sitharaman said Friday while presenting the Union Budget for the financial year 2019-20.

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Promoters and state-run companies (PSUs) will have to comply to meet with the new minimum public shareholding norms proposed by Finance Minister Nirmala Sitharaman, said Arvind Srivatsan, Partner, Nangia Advisors. “Higher minimum public shareholding of 35% in listed companies will help force promoters to relax their grip on companies and let public and institutions have greater say in corporate actions that are put to vote. However, the enforcement will have to be effective given the track record since 25% rule was introduced in 2010,” Sunil Gidwani, Partner, Nangia Advisors, added.

The government extended the timeline last year or PSUs to maintain minimum shareholding norm of 25 per cent from the earlier minimum public shareholding of 10 per cent to August 2020. In 2013, the market regulator had set a deadline for all listed companies to comply with the minimum shareholding rules. Later the government decided that the PSUs should also maintain a minimum public shareholding of 25 per cent as in the case of private companies. Currently, there are more than 1,400 listed companies, in which the promoters have more than 65 per cent stake, according to the information on exchanges. 

As a key source of capital to the Indian economy, the minister proposed to rationalise the KYC norms to make them more user-friendly and hassle-free without compromising on the integrity of cross-border cap flows. She also proposed the Social Stock Exchange under SEBI for listing social enterprises and voluntary organisations working for the realisation of social welfare objectives. 

The government also proposed investments made by foreign institutional investors or FIIs and foreign portfolio investors (FPIs) in debt securities issued by infrastructure debt fund, non-banking finance companies to be transferred, sold to any domestic investor within a specified lock-in period. For the corporate debt markets, crucial for the infrastructure sector, Sitharaman said, “Given the need to further deepen the bond market, to deepen the tri-party repo market in corporate debt securities, the government will work with regulators, RBI and the SEBI to enable stock exchanges to allow AA rated bonds as collateral. User-friendly trading of corporate bonds will be reviewed including issues arising out of capping of the international securities identification number.”

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