SEBI amends listing norms: Who gets impacted?

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SEBI amends listing norms: Who gets impacted?

Jagannadham Thununguntla of SMC Global in an interview to CNBC-TV18 shared has views on amendments made by SEBI in the listing agreement.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

The market regulator SEBI, in the past few days, brought a number of changes in its listing norms. It has notified the Institutional Placement Programme (IPP) guidelines to allow companies to reduce promoter shareholding through private placement. This move is expected the aid government in its divestment process.

Further, SEBI has also removed the block deal option, so that promoters can meet 75% threshold.

However, Jagannadham Thununguntla of SMC Global feels that this move won't make a big difference. "The auction window is more or less of a similar pattern like the bulk deal, block deal. What can be achieved through bulk deal block deal it can also be achieved through auction mode, he told CNBC-TV18.

"Eight PSUs (including STC, MMTC , RCF and National Fertilizers ) in which the government holds more than 90% stake are likely to get impacted. In the private sector, stocks like DLF , Reliance Power , Godrej Properties , and Godrej Industries will be in action in the next one year to meet this norm, he added.

Thununguntla believes, given the current market condition, one will have to see if these companies are able to complete the procedure even through the IPP route.

Below is the edited transcript of Thununguntla's interview with CNBC-TV18's Mitali Mukherjee and Udayan Mukherjee. Also watch the accompanying video.

Q: What did you take away from the SEBI note and the changes they have put forth?

A: There were two three instances in the past, where SEBI tired to force companies for minimum public share holdings norms. But for some reason or other companies couldn't complete, so SEBI kept on giving extension. The last extension was given in June 2010, giving a three year period up to June 2013 that the companies have to meet with the minimum public share holding norms.

Earlier only Follow on Public issue used to be the mode where companies can give, but now because market conditions were not that exciting to accommodate the FPO's, SEBI has given this IPP and auction mode for coming out with this issues.

For the PSU companies where the government holds more than 90%, the government can easily now out with either IPP or auction mode to meet with the 90%. There are eight such companies including STC, MMTC, RCF and National Fertilizers. In the private sector, stocks like DLF, Reliance Power, Godrej Property, and Godrej Industries will be in action in the next one year to meet this norm.

Q: How important is the removal of that block deal option you think?

A: It may not make such a big difference because the auction window is more or less of a similar pattern like the bulk deal, block deal. What can be achieved through bulk deal block deal it can also be achieved through auction mode. It may not be such a big distracter because even in the past, hardly any company has used bulk deal block deal mechanism to meet with minimum public share holding norm.

Q: Which PSU candidate looks most interestingly poised to do that and what kind of money do you think could potentially be raised out of the process?

A: There are eight companies in the PSU segment; STC, MMTC, National Fertilizers, RCF, and HMT. Most of them are good, but they are not very large companies. Even if the government brings down their stake to 90%, the total money that can be raised by them can be Rs 4,000-5,000 crore at a maximum.

In companies like STC, MMTC 99.73% is held by government, so public float as small as 0.27%. So, the current cap market at which it is trading is very high. We cannot rather inference that the government will be able to raise the same level of valuation, when they come out to dilute the remaining 10%. The prices will tamper off a lot when the real auction and the IPP will happen in those cases. Some of the rallies seen in STC, MMTC over a bit of last two to three months should get cooled off before government selects any of these modes.

Q: From the private space which ones stand out?

A: Godrej Properties has started the procedure. Godrej Properties is an interesting one; DLF and even mini real estate companies strangely like Omaxe , Puravankara, and IVRCL, so there are many companies where the promoter owns more than 75%. They had come for IPO in 2007.

In those days they used to come out dilute only 10-15%, so now they have to forcefully do. Considering the market conditions, whether there will be enough takers for real estate stocks that's a major if. Even if IPP route is allowed we need to see whether they will be really able to do complete the procedure.

One more interesting segment is the MNCs, where promoters own more than 75%. Cases like BOC India, Fresenius Kabi and Timken India will go for de-listing irrespective of IPP or auction mode methodology. I don't think promoters will be keen to come down to 75%. Most likely their de-listing plans will still alive.