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Sebi offers listing leeway
- Custodians of market go ahead with key measures even as scrips reel under selling pressure

Mumbai, April 13: The Securities and Exchange Board of India (Sebi) today relaxed the rules specifying a minimum public shareholding of 25 per cent in the case of companies that have issued more than two crore shares and have notched up a market capitalisation of more than Rs 1,000 crore.

These companies will be required to maintain a public float of at least 10 per cent at all times to ensure continuous listing on the bourses.

The relaxation will also apply to companies which had offered 25 per cent of their equity to the public but were unable to rustle up the desired response. These companies should have complied with the terms of section 19 (2) (b) of the Securities Contract (Regulation) Act, 1957, which requires firms to make an offer of 25 per cent to the public for subscription through advertisements in newspapers for at least two days and the subsequent allotment of shares to the applicants “fairly and unconditionally”. They will also have to ensure a public shareholding of 10 per cent.

Last August, Sebi had prescribed a time limit of two years for companies to attain a minimum public shareholding of 25 per cent. The capital market regulator’s directive had sparked protests because it puts companies at the risk of being delisted from the stock exchanges if they failed to comply. Many felt that the delisting of these companies would penalise small investors for no fault of their own and with no mechanism to dispose of their shares.

The regulator appears to have seen some reason in the argument. Besides these two groups of companies, it said the 25 per cent public float floor would not apply to government companies, infrastructure firms and those firms that had been referred to the Board for Industrial and Financial Reconstruction.

The rule change was made through suitable amendments to clause 40A of the equity listing agreement that companies are required to sign with the authorities of the stock exchanges where they are listed.

Strangely, the directive made no mention of infotech companies. Several IT companies like Wipro do not have a public float of 25 per cent, though in Wipro’s case its market capitalisation is far in excess of Rs 1,000 crore.

IT companies enjoy a separate relaxation under the listing rules and are required to offer only 10 per cent to the public provided they offer a minimum of 20 lakh shares and the size of the public offer is at least Rs 50 crore.

The regulator also defined what it meant by public shareholding. This would comprise “shares held by entities other than promoters and promoter group and shares held by custodians against which depository receipts are issued overseas.”

A transparent mechanism will be created to enable non-compliant companies to meet the minimum public shareholding level within a reasonable time period as approved by the specified stock exchange.

The format for reporting shareholding pattern is also being changed. Henceforth, there will be only three categories: shares held by promoter and promoter group, shares held by public, and shares held by custodians and against which depositary receipts have been issued

The changes will come into effect from May 1.

Companies which did not comply with the minimum public float norm would be given a reasonably time period, as approved by the specified stock exchange, to fall in line. “It has been decided to provide a transparent mechanism to such non-compliant companies for enabling them to graduate to the level of complaint companies,” the regulator said.

The wording of the amended clause indicates that companies that are not compliant with the minimum public shareholding norm ' 25 per cent for most companies and 10 per cent in the case of the others ' will have to fall in line latest by May 2008.

The amended clause 40A says the non-compliant companies will have to agree to increase public shareholding “within such period as may be approved by the specified stock exchange but not exceeding two years from the said date”.

The regulator also amended clause 35 of the listing agreement to revise the reporting format for the shareholding pattern in companies. The shareholding pattern will now be indicated under three categories: shares held by promoter and promoter group, shares held by public, and shares held by custodians and against which depositary receipts have been issued.

The regulator said the revised clause 40A shall come into effect from May 1 and revised clause 35 shall start from the quarter ending June 30.

All stock exchanges have been instructed to appropriately amend the clauses in their listing agreements before the circular comes into force on May 1. They have also been advised to monitor compliance with the minimum level of public shareholding based on quarterly returns submitted by companies. They will have to submit a report to Sebi indicating compliance within 45 days of each quarter.

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