Even as the Finance Ministry on Monday maintained that the new norms mandating a minimum 25 per cent public holding in companies listed on the bourses would make for a healthier market and catalyse the government's public sector disinvestment programme, India Inc. has suggested that its enforcement be put on hold for at least three months to sort out a lot of “grey areas”.
Interacting with the media on the new listing policy norms which, while deepening the market, has indirectly paved the way for offloading a larger chunk of the Centre's stake in public sector undertakings (PSUs), Finance Secretary Ashok Chawla said: “It [25 per cent public holding norm] was announced in the budget. This has been operationalised and, in the medium-term and long-term, it would be for the better health of the capital market”.
Mr. Chawla argued that the 25 per cent minimum public float criterion would afford greater opportunities to investors to participate in the equity offerings of a large number of companies in public and private sector.
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Though beneficial over the medium-to-long-term, the new norm is expected to witness a rush of offers in the short-term entailing a flight of capital from the secondary market to the primary market.
Ostensibly, apart from the negative global cues on fresh concerns over the Eurozone debt crisis, it was this apprehension that also triggered a sell-off on the Bombay Stock Exchange and its benchmark Sensex slumped nearly 337 points on the first day of trading after the policy announcement on Friday last.
Voicing India Inc.'s concern over the new public float norm for listed entities, Confederation of Indian Industry President Hari S. Bhartia said: “Large cap firms, in fact all the companies, should definitely be given more time. The government can give three months' time. The policy announcement of June 4 can be treated as the concept paper on which views of different stakeholders can be sought”. Mr. Bhartia pointed out that while the policy of stipulating a larger public float was a good move and would aid the government's divestment process, there would be crowding out of resources in the short-to-medium term.
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“Too much paper (initial public offerings and follow on public offers) will chase the same money,” he said, and felt that wider consultations should be held with industry before implementing the new norms.
Besides, among the grey areas that call for clarity include the issue of how private equity investment is to be treated.
The Finance Secretary, however, views it otherwise. Allaying fears over the rush of public offers having a negative impact, he said: “Well, it is not something, which is going to happen in a day. There is a roll-out plan as you would have seen.”
And since the 25 per cent public float norm would be over a long period of at least five per cent dilution each year, “there is really no anxiety, [as] if something is really going to happen to the full extent tomorrow.”
More importantly, the new norms would have a positive impact on disinvestment, Mr. Chawla said. Against a mop-up target of Rs 40,000 crore through disinvestment this fiscal, what has been achieved is slightly over Rs 1,000 crore from dilution of the Centre's equity stake in Satluj Jal Vidyut Nigam.