SEBI currently not in favour of hike in minimum public shareholding to 35%

The Securities and Exchange Board of India (SEBI) is currently not in favour of minimum public shareholding for listed companies being hiked to 35 percent from the current 25 percent and has communicated its view to the Finance Ministry.

At a press conference following its board meeting, SEBI Chairman Ajay Tyagi said that there are some aspects on the issue that need to be further examined. “Our view is that liquidity [in the market] is good. The short and long term implications of the decision will have to taken into account, including how much money will come to the market. Also, the IPO market is not doing very well right now. We have communicated all of these viewpoints to the government for consideration and examination.”

Tyagi said that if public shareholding were to go up by itself, it would be welcome, pointing out that currently, the average public shareholding is anyway high at around 50 percent.

The decision to mandate the 35 percent minimum public shareholding was announced in the July Budget by Finance Minister Nirmala Sitharaman.

A higher public shareholding, or “float”, has the potential to create more liquidity in shares. As well, the decision would allow the government to sell another 10 percent in state-owned companies, leading to a potential windfall.

But analysts have question whether the market has the appetite to absorb the number of share sale issues that would be undertaken to meet the objective.

Listed state-owned companies have also struggled to meet the current norm of having minimum 25 percent stake – with as many as 45 percent of such companies failing to achieve the objective. The government has extended the deadline to do this to August 2020. This even as SEBI has penalised private companies that have failed to meet the minimum shareholding requirement.

“The Primary Advisory Committee of SEBI is also not in favour [increasing the minimum public shareholding to 35 percent],” a source told Moneycontrol. “SEBI has communicated its view after taking into account the PAC’s opinion.”