PUBLIC SHAREHOLDING NORM - HOPEFULLY, NO EXTENSION OF DEADLINE
By Ruma Dubey
ABB tanked today and this was after the company issued a clarification stating that it does not plan to delist. This dashed the hopes of many waiting to make a killing. But one wondered why at all the company could have opted for delisting as promoters holding is at 75%, exactly what SEBI has recommended.
Every other day, one stock or the other is up precisely on this rumour – delisting. The deadline for bringing down promoters holding to 75% or less expires on 30th June 2013, three years after it was mooted. That for the public sector, where public float should be at least 10%, expires on 31st August 2013. Time is running out for the private sector companies and there are still over 100 companies which have yet to comply with this ruling. This means, starting today, there should have been at least 2-3 companies per day who should announce a delisting or Offer for Sale or IPP to bring down the stake. There should have been a deluge but there is no dust yet rising on the horizon to indicate the arrival of any such storm. Around 100 private sector companies and 10-12 PSUs are yet to meet the minimum public holding requirement and this means, over the next 2-3 months, we should see share sales of over Rs.20,000 crore.
Corporate grapevine has it that the deadline, in all probability might get extended. And this could happen at the behest of the Govt – with around 3 more months to go, it is unlikely that it will be able to bring up public holding to at least 10% in several companies, prime amongst them being MMTC, where Govt of India holds 99.33%. If the Govt is itself not able to meet the minimum shareholding requirement and if it requires an extension, naturally, it will have to extend that extension to the private sector companies too. And that is the logic on which many companies are sitting tight and not yet making moves to pare stakes. At this juncture, SEBI also needs to come out and state very clearly that whether there will or will not be an extension instead of waiting till the last moment. This clarification will at least put an end to this day-to-day speculation on “probable delisting” stocks.
Companies currently have four routes to pare their stakes – delisting, promoters sell stake, which in turn can be done through an Offer for sale (OFS) or institutional placement programme (IPP). Under OFS mechanism, promoters auction their existing shares to bring stake and in IPP. Promoters can sell up to 10% stake through auction to institutional investors.
Omaxe has announced today that it will be going in for an OFS route to bring down its stake to 75% from the current 89.14%. Others like DLF, Prestige Estates, Godrej Properties, Mahindra Holiday and many more have used the IPP route. Three more companies – DLF for another round of IPP to bring down its 78. 58% stake, Puravankara Projects to bring down its 89.9% stake and State Bank of Mysore (92.33%) have announced taking the IPP route. Actually, majority of realty companies have opted for the IPP route. Oberoi Realty is yet to announce its route to pare promoters stake, which currently stands at 78.49%.
Delisting as a theme is more or less over as there is simply not enough time and more importantly, it is simply no longer feasible due to the high cost involved. Shares cannot be delisted at a discount to the market price as shareholders simply do not tender in their shares ensuring that the offer fails. We saw that happen with Indo Tech Transformers and Elcid Investments.
The PSU companies have used a backhanded approach to their paring of stakes. It did have OFS’s in some companies like Hindustan Copper and Rashtriya Chemical but in almost all PSU OFS, it was LIC which picked up the “extra” stake of Govt of India. So from one PSU to another PSU, defeating the entire purpose of SEBI’s rule.
The entire purpose of SEBI going for this minimum public float was to increase retail participation but with many companies, including PSUs using such underhand methods or selling stakes to some 5-10 institutions, will there really be an increase in retail participation or would they have achieved the objective of merely transferring the ownership from one to the other?
The coming days could be interesting and we are sure to see the market getting crowded with IPPs and OFSs. Hopefully the market will have the capacity to bear this major shares sell and better still, one hopes that SEBI scuttles all speculation and clarifies once and for all about whether or there will be an extension of the deadline. Ideally, there should be no extension of this deadline as it nullifies the efforts of all the companies which hurried to meet the deadline. Moreover, it will set a precedent that rules and deadlines are never meant to be taken seriously.
And those who do not meet the deadline? Would be interesting to see how SEBI cracks its whip on such erring companies.