The coming months could see a flood of new paper coming into the equity markets with the government proposing to increase the minimum public shareholding (MPS) in listed companies while stressing on the importance of disinvestment in public sector undertakings.
“It is right time to consider increasing minimum public shareholding in the listed companies. I have asked the SEBI to consider raising the current threshold of 25% to 35%,” said Finance Minister Nirmala Sitharaman, while presenting the Budget.
While stating that the government would take all steps to increase the public holding in all PSUs to 25%, she indicated that foreign shareholding limits would be raised to the maximum permissible sector limits for all PSU companies, which are part of Emerging Market Index. Simply put, this would enhance India’s weightage in the global index, which takes into account the free-float capital of the constituent companies.
Market participants, however, were divided with some believing that the proposal to raise the MPS could lead to some multinational companies looking at delisting rather than further diluting promoter stake.
“Increase in public shareholding proposed from 25% to 35% is potential negative for MNC and companies with high promoters holding,” said Amar Ambani, president and research head, Yes Securities, while adding that many listed MNCs may consider delisting.
“If increased public shareholding norm is implemented, supply of paper in the market will increase. This will mean that money will be sucked out of secondary market and valuations will remain under check,” he added. In 2010, the capital market regulator made it mandatory for listed companies to have a minimum public shareholding of 25% — the threshold was fixed at 10% for PSUs — within three years. Later on, the public holding limit for PSUs was also raised to 25% though some of the listed public sector entities are yet to comply with the norm.
Incidentally, the recent volatility of the secondary market has affected the primary market as well with companies adopting a wait and watch approach before launching their public issues.
“Implementation of this idea would require promoters to reduce their stake in a time bound manner and for this purpose, having a good primary market and conducive secondary market would be essential,” said Nitesh Mehta, Partner, Transaction Tax, Tax & Regulatory Services, BDO India.
The flurry of new paper would also be aided by the government’s Rs.1.05 lakh crore divestment target for the current financial year.
Fund access for start-up
As part of its attempts to boost fund-raising by start-ups and ventures, especially those in the social field, the government has proposed a novel idea in the form of a social stock exchange, wherein such entities can list and raise capital in the form of equity or debt.
“It is time to take our capital markets closer to the masses and meet various social welfare objectives related to inclusive growth and financial inclusion. I propose to initiate steps towards creating an electronic fund-raising platform, a social stock exchange,” the Minister said.
The exchange, which would be under the regulatory purview of the SEBI, would be for listing social entities and voluntary organisations working towards a social welfare objective so that they could raise capital as equity, debt or as units like a mutual fund, she added.
Incidentally, there are unregulated platforms, both in India and overseas, that enable social ventures to raise funds from investors. These dedicated platforms allow companies with a clear proof of impact investment or socially relevant objectives to connect with dedicated investor pool looking for such ventures.
Experts believe that the concept of a social stock exchange has the potential of generating benefits for the society at large while helping ventures in meeting their fund raising objectives in a transparent and regulated manner.
“Social stock exchange with a policy, centric to promote sustainable impact investments, will generate large societal benefits apart from achieving financial goals,” said Suraj Malik, Partner, Transaction Tax, Tax & Regulatory Services, BDO India.
In a similar context, Ajay Piramal, Chairman, Piramal Group, said that the “proposed social stock exchange is an innovative approach to raise funds for institutions committed to improving the well being of larger masses.”
As and when the social stock exchange comes up, it would be the first instance of a regulated bourse for social ventures in India. It is expected that SEBI would soon come out with the operational guidelines for such a social stock exchange.
