PSUs need to comply with 25% minimum public shareholding by August 2017

List­ed pub­lic sec­tor com­pa­nies will have to com­ply with the norm of 25 per cent min­i­mum pub­lic share­hold­ing by August 21, 2017. This will help the Government’s dis­in­vest­ment pro­gramme as well as ensure more PSU shares for retail investors.

At present, pub­lic sec­tor com­pa­nies are required to main­tain 10 per cent min­i­mum pub­lic share­hold­ing, while list­ed pri­vate sec­tor enti­ties are required to have 25 per cent pub­lic share­hold­ing.

How­ev­er, On June 19, the SEBI board decid­ed that there should be a uni­form norm for all com­pa­nies list­ed on stock exchanges. Accord­ing to the web­site bsepsu.com, there are 25 Cen­tral Pub­lic Sec­tor Enter­pris­es (CPSEs), nine pub­lic sec­tor banks (PSBs) and one State-lev­el pub­lic enter­prise (SLPE) which are list­ed and have less than 25 per cent min­i­mum pub­lic shareholding.

The Finance Min­istry has noti­fied an amend­ment to the Secu­ri­ties Con­tracts (Reg­u­la­tion) Rules, 1957, accord­ing to which “every list­ed pub­lic sec­tor com­pa­ny which has pub­lic share­hold­ing below 25 per cent, on the date of com­mence­ment of the Secu­ri­ties Con­tracts (Reg­u­la­tion) (Sec­ond Amend­ment), Rules, 2014, shall increase its pub­lic share­hold­ing to at least 25 per cent, with­in a peri­od of three years, in the man­ner, as may be spec­i­fied, by the Secu­ri­ties and Exchange Board of India.” The date of effect is August 22, 2014.

SEBI’s norms man­dat­ed min­i­mum pub­lic share­hold­ing norms of 25 per cent for list­ed pri­vate sec­tor com­pa­nies by June 3, 2013.

Accord­ing­ly, on June 4, the SEBI passed an order against 105 pri­vate com­pa­nies for not ful­fill­ing these norms. It first issued a show-cause notice to these com­pa­nies and, based on their replies, ini­ti­at­ed action, includ­ing freez­ing vot­ing rights, div­i­dend, impos­ing penal­ty among oth­er things.

Accord­ing to an order by Prashant Sha­ran, whole-time mem­ber of SEBI, dat­ed June 4, 2013, the avail­abil­i­ty of a min­i­mum portion/number of shares (float­ing stock) of the list­ed secu­ri­ties with the pub­lic ensures that there is a rea­son­able depth in the mar­ket and the prices of the secu­ri­ties are not sus­cep­ti­ble to manipulation.

More­over, a dis­persed share­hold­ing struc­ture is also essen­tial for the sus­te­nance of a con­tin­u­ous mar­ket for list­ed secu­ri­ties in order to pro­vide liq­uid­i­ty to investors and offer fair prices.

SEBI has pre­scribed var­i­ous instru­ments for achiev­ing min­i­mum pub­lic shareholding.

These include fol­low-on pub­lic offer, offer for sale through stock exchanges, insti­tu­tion­al place­ment pro­gramme, rights issue (with pro­mot­ers for­go­ing their rights enti­tle­ments) and bonus issue (with pro­mot­ers for­go­ing their bonus entitlements).