The Department of Economic Affairs, Ministry of Finance has issued a notification amending the Securities Contracts (Regulation) (Amendment) Rules, 2010 which allows for a lower public shareholding for public sector enterprises (PSEs).
The main feature of the amendment is that the minimum requirement of public shareholding for all PSEs has been lowered to 10%, as against the government’s earlier regulatory guideline requiring all publicly listed companies to reach 25% public shareholding level, private or state owned.
Now, a listed public sector company which has a public shareholding below 10% on the date of commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2010 will be required to increase its public shareholding to at least 10% within a period of three years.
The modified rules give a breather to private sector companies. They will have to comply with the minimum 25% public float within three years but they will now have flexibility in how the limit is reached, without the annual 5% increase mandated in the current rules.
Earlier, the finance ministry had amended the rules to the Securities Contracts (Regulation) Act on June 4 this year, asking companies to lower their promoter holdings in order to increase opportunities for common investors and also increase free float to discourage manipulation.
But it faced criticism from many public sector firms which argued that had agreed to get listed because the government wanted to divest stake in them and not because they needed to raise funds. Additionally, many enterprises felt that the norms would impact the valuation of the companies, as at present, most firms dilute a 10% stake and their shares tend to trade at a premium.
Source: Hindustan Times Content Team
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