Finance Minister Nirmala Sitharaman, in her maiden budget, proposed to increase minimum public shareholding for listed companies to 35 percent from the current 25 percent.
This means the promoters can’t hold more than 65 percent from the current limit of 75 percent. However, this is just a proposal. Sitharaman said she had made the suggestion to SEBI, which would consider it in the coming days.
If the move is approved by the market regulator, it would be positive for investors but a mixed bag for India Inc.An estimated 250-plus companies will be impacted which have over 65 percent promoter shareholding. Stocks like TCS, Wipro, Interglobe aviation, Bandhan Bank were under pressure as all have promoter shareholding of over 70 percent.
According to Vivek Gupta, partner & national head- M&A/ PE Tax at KPMG, "Move for moving minimum public shareholding for listed companies from 25% to 35% must be implemented carefully. Timing, applicability, etc to be closely evaluated - we don’t want this to be another “forced sale'. Good opportunity for institutional capital and funds”.
Vinay Pandit, Head-Institutional Equities at IndiaNivesh Securities, said, "The recommendation of increasing public participation from 25% to 35 %, expect the float of several more companies to increase in the next 2 years, leading to several INs and OUTs of the Nifty which is currently based on Free Float methodology. A lot of MNCs, Insurance companies and Consumer companies like DMart will stay in focus because of it. The Index will become more BFSI and Consumption heavy unless sectoral caps are brought in. This will also offer greater float in the market for institutional participation."
Research by brokerage KR Choksey suggests that currently 167 companies in BSE-500 are listed at 35 percent or less public shareholding with the current market cap at Rs 41.31 lakh crore. This would mean that the additional capital required would be up to Rs 3.69 crore.If approved, the proposal would mean a few things:
MNC’s with over 70% holding could look at delisting Delisting in the market could increase which would be positive Companies could look at OFS route to bring down stake
While many companies would be impacted by this move, if it were to be passed, some of the key companies that would be impacted include:
holding at 72.05%
Dilution needed at $8.5 billion
Holding at 73.85%
Dilution needed at $2.17 billion
3. Avenue Supermart
Holding at 81.2%
Dilution needed at $2.07 billion
4. L&T Infotech
Holding at 74.8%
Dilution needed at $0.4 billion
5. Bandhan Bank
Holding at 82.26%
Dilution needed at $1.65 billion
5. HDFC Life
Holding at 76.14%
Dilution needed at $1.5 billionExperts also suggest that the market regulator may look at consulting all stakeholders before finalizing the norm. This could mean that a move of this scale would take at least 4-6 months before it is formally implemented.