Thaindian News

By Jagannadham Thunuguntla
The government’s decision to amend the minimum public holding norms for listed companies has been a sensible and practical decision, taking into account the absorbing capability of the markets and the prevailing conditions.

Otherwise, there would have been stampede of public issues, causing enormous stress — both on primary as well as secondary markets.

After this revision, state-run companies are expected to maintain their minimum public shareholding of 10 percent within a period of three years. And, for the private sector, it shall be 25 percent over a period of three years.

Before this amendment, there were 35 state-run companies which would have been affected by the said minimum public shareholding guidelines. The total amount expected to have been raised by them was to the tune of about Rs.125,000 crore (over $27 billion).

After this amendment, about 20 public sector undertakings will get relaxation from this guideline, and only 15 state-run firms will get subjected to the requirement.

The start-run companies that will get relaxation include Satluj Jal Vidyut Nigam, Power Finance Corp, Mangalore Refinery, National Aluminium, Power Grid Corp, NHPC, SAIL, NTPC, United Bank of India, Central Bank of India, Shipping Corp, Indian Bank, India Oil Corp, Oil India, Bank of Maharashtra and Bharat Electronics.

As a result, the 15 public sector undertakings that will be affected by the revised norm will need to raise just around Rs.20,000 crore ($4.4 billion) at current market prices. This means a whopping Rs.105,000-crore ($23 billion) lower.

The 15 companies that will still have to comply with the guidelines include Hindustan Copper, MMTC, Neyveli Lignite, National Fertilizers and HMT.

Post this amendment, there will also be substantial reduction on the number and amount of public issues expected to come to the market. This is quite a sensible and practical decision by the finance ministry.

Before this amendment, the total impact on state-run companies and the private sector firms put together was to the tune of about Rs.151,000 crore ($33.5 billion). Of this, about Rs.26,000 crore ($5.74 billion) was to have been raised by the private sector.

However, after this amendment, the total impact will reduce to about Rs.46,000 crore ($10.2 billion). Of this, about Rs.20,000 crore ($4.44 billion) will be raised by pubic sector firms and about Rs.26,000 crore ($5.76 billion) by the private sector.

Also good to note is that rationality has finally prevailed. Of course, some sections of the capital markets may view that this guideline has an element of “bias” towards state-run firms in comparison to the private sector.

While private companies need to take their minimum holding to 25 percent for state-run firms only have to raise it to 10 percent. Nevertheless, keeping the larger picture in mind, this is quite a prudent decision by the finance ministry.

This surely will help in averting a stampede of public issues.

(Jagannadham Thunuguntla is the equities head of SMC Capitals. He can be reached at jt@smccapitals.com)