How public are India’s Public Listed Companies?

By Menaka Doshi and Natasha Parekh, CNBC-TV18:

How public are India’s Public Listed Companies is currently a debate but very soon that question could lead to rule changing controversy because experts say, “Who constitutes public is itself a grey area.”

This public includes institutional investors such as FIIs and mutual funds as it is being a definition till now or does it only mean retail shareholders?

Who is the public in a Public Listed Company? The answer to that question will impact every single of the 5,000 odd listed companies in India because under SEBI’s continuous listing requirements starting May 1 all listed companies will have to necessarily have a minimum public shareholding of either 10% or 25%. Except that no one -not even the government is clear on who is the public?

CKG Nair, Director, Capital Market Division, MoF says,"We are re-looking at the issue of public holding and in the process we are re-looking at the definition of the public and also looking at the process in which this entire thing can be looked at." 

Till now the definition of public under the Securities Contract Regulation included all non-promoter entities. So mutual funds, financial institutions, foreign investors they all join retail investors in the same class. But now public maybe redefined to mean just retail shareholders. A definition that is contrary to international standards and tough for many at home to swallow.

Prithvi Haldea, MD, Prime Database says,"I am of the view that there is a promoter and there is a non-promoter. This public should actually be non-promoter and include all non-promoter shareholders."

SV Subramanian, Advisor, L&T says,"Public shareholding can change at a particular point of time. If you redefine the public meaning the financial institutions and mutual funds on one side, retail investor on other side there will always be a flow of securities between the two parties. Therefore the shareholding pattern will keep changing whereas the non-promoter holding will not get affected. If you redefine the public as only retail shareholders when the shareholding comes down their liability is passed on to the promoters to increase that shareholding."

Subba Rao, CFO, GMR says, "A small issue of Rs 1,000 crore or Rs 500 crore that doesn’t matter even if 25% has been subscribed by the Indian shareholders, public shareholders. In a large issue like Reliance Power where it is more than Rs 10,000 crore if Rs 2,500 crore has to be subscribed by the Indian Retail Public it is going to be very tough situation for the Indian Retail Public to subscribe that kind of large issue. It’s not going to be subscribed." 

A change in definition will impact almost every listing on Dalal Street including all Sensex talks. An ASSOCHAM Survey shows that with the exception of two companies Bajaj Auto and Larsen and Toubro where the public shareholding is above 25% every single Sensex Company comes in far lower. Stocks like Bharti Airtel and Maruti Suzuki have a public shareholding of under 3%. So why is the government even considering such a move. Ostensibly because it wants companies to be wider held more retail participation and hence a more vibrant market. Also there are instances of companies where public shareholding has dipped below 10% hurting the interest of minority shareholders. But matters are still at a discussion level.                 

Kayoor Bakshi, President, Institute of Company Secretaries says,"We have come out with a concept paper; the public opinion is being sort for. So whether everything, which is non-promoter, will be public or not that the issue that they are trying to decide because overall there will be sub-categories in public. For example, 25% public holding - what will be high net worth individual, what will be mutual funds and FIIs and what will be the retail public."

So it seems the May 1 deadline to comply with the public listing norms will most likely come and go with a little impact. This storm will take sometime to brew.