PSUs out of 25% public float norm
New Delhi   10-Aug-2010

The finance ministry has exempted state-owned firms from the recent rule that requires listed companies to achieve at least 25% public holding within three years after some of them said they will not participate in disinvestment if the rule was forced on them. Public sector firms will now have to maintain a minimum public float of only 10%, the finance ministry said in a notification on Monday.

The modified rules also gave a breather to the 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.

"We were clear from the beginning that the 25% listing for PSUs should not be mandatory," minister of state for coal Sriprakash Jaiswal told ET adding that this will consolidate the ministry's position in respect of CIL where the government has decided to offload only 10% of its stake.

Listed state-owned companies that have less than 10% public stake will have to reach that threshold over a period of three years, but those listing through a public offer will comply with the 10% norms at the time of listing in one go.

While market experts welcomed the change, Prime Database chairman and managing director Prithvi Haldea questioned the relaxation. "Why is the relaxation only for PSUs and not private companies? If NMDC is exempt, then so should Wipro be," he said, adding that the government should review the post listing norms for companies depending on their market cap.

"The finance ministry has taken a practical decision based on the absorbing capacity of the market and the prevailing market conditions," said Jagannathan Thunuguntla equity head at SMC Capitals.

The finance ministry had amended the rules to the Securities Contracts (Regulation) Act on June 4, asking companies to lower their promoter holdings in order to increase opportunities for common investors and also increase free float to discourage manipulation.

But many public sector firms like CIL and Nalco as well as the department of disinvestment had sought a review of the norms saying that it would impact the valuation and keep them away from the stake sale programme. Many PSUs had agreed to get listed because the government wanted to divest stake in them and not because they needed to raise funds, they had argued.

CIL was the first to come out openly and challenge the new rules saying that it will not dilute beyond 10%.

Only 15 state-run firms will have to comply with the new 10% norms as opposed to the earlier 35, according to a report by SMC Capitals. These include MMTC, Hindustan Copper, Neyveli Lignite, National Fertilsers and HMT. "The decision would have caused enormous stress both on primary as well as secondary markets, Mr Thunuguntla said, adding that companies would have been forced to raise over '1.51 trillion in a short span.

"We are not affected by the new norms," said an official in IndianOil's board asking not to be named. The government has 78.92% stake in the company, which is expected to be a part of the disinvestment programme for 2010-11 along with Steel Authority of India, Hindustan Copper and Power Grid.