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| Rs.1.6 tn additional capital needed under proposed public shareholding of minimum 25%, says Crisil
May 25, 2010:
Ministry of Finance (MoF) and the Securities and Exchange Board of India (SEBI) have been contemplating increasing
public shareholding to minimum 25%. According to CRISIL Equities, currently 179 listed companies
have public shareholding below 25%. Based on the current market price and the extent of promoter
holding.
Crisil estimates that these companies will raise Rs 1.6 tn if they opt for sale of shares; and Rs
2.1 tn if they plan to dilute their stake via issue of fresh shares. About 82% of the estimated funds are
likely to be raised by 29 listed government entities in order to adhere to the proposal.
Crisil Equities believes that the proposed move
would significantly increase liquidity in the equity markets, thereby making fair price discovery more
robust and also enhance investor participation. However, companies will need adequate time to fulfil
the above requirement as it will be difficult to raise this money from the market in the short term and
could impact their market value.
According to Mr. Tarun Bhatia, Director – Capital Markets¸ CRISIL Research: “The proposal
is in line with practices followed in developed economies globally and is expected to improve the
liquidity in these companies.”
While the London Stock Exchange requires 25% minimum public
shareholding, Singapore and Hong Kong stock exchanges also stipulate public shareholding between
12% and 25% based on the market capitalisation of the company; lower the market capitalisation,
higher the minimum public holding.
“However, such a significant step should be implemented in a gradual manner as the overall
quantum of fund raising is almost three times average annual fund raising observed in the recent
past,” adds Mr. Bhatia. Over the past six years, companies have raised Rs 500-550 bn annually on an
average through equity issues including IPOs.
(Extracted from press release of Crisil)
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