Public means persons other than – (i) the promoter and promoter group; (ii) subsidiaries and associates of the company. Public shareholders could be individual or financial institutions and they normally buy shares through public offer or secondary markets. In order to bring more transparency in the working of listed companies, the concept of minimum public shareholding(MPS) has been introduced.
The timeline for achieving MPS varies for listed public sector companies and listed companies. With regard to the listed public sector companies, the deadline to meet the MPS was 2 years from the commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2018 which expired on 2nd August, 2020.
Considering the unfavorable market conditions and difficulty in meeting the MPS requirement during the outbreak of the Corona Virus, the Ministry of Finance has vide its notification dated July 31, 2020 has extended the time period by 1 year i.e. till August 2, 2021 for listed public sector companies.
More time for maintaining minimum public shareholding is the second major relief on compliance front for the listed companies during a pandemic. Earlier on May 14, SEBI relaxed applicability of action against not maintaining the shareholding norm. According to the regulator, after taking into consideration requests received from listed entities and industry bodies as well as considering the prevailing business and market conditions, it has been decided to grant relaxation from the applicability of the October 10, 2017 circular.
Recognized Stock Exchanges are advised not to take any penal action as envisaged in the October 10, 2017 circular against such entities in case of non-compliance during the said period. Penal actions, if any, initiated by Stock Exchanges from March 1, 2020 till date for non-compliance of MPS requirements by such listed entities may be withdrawn.
History Behind Minimum Public Shareholding :
MPS requirements for listed public sector companies initiated in the year 2010, when these companies were given a timeline of 3 years to comply with 10% MPS requirements.
Later, as per prevalent market conditions the Central Govt. in August, 2014 increased this threshold to 25% and these companies were given a timeline of 3 years to comply with MPS requirement which was subsequently increased to 4 years in July, 2017. Considering the difficulty faced by such companies in diluting their shareholding, the Central Govt. in August 2018, allowed a fresh timeline of 2 years i.e. upto August 2, 2020 to such companies to comply with such requirements.
Current Scenario :
PSUs constitute around 7.22% of the capital market in India and according to the shareholding data provided by BSE there are a total of 64 listed CPSEs in India out of which 26 of them have less than 25% public shareholding. This list is dominated by companies which include Hindustan Aeronautics Ltd, General Insurance Corporation of India, Indian Railway Catering & Tourism Corporation Ltd, New India Assurance Company Ltd and counting. There are even such companies in which more than 90% of the shareholding is alone held by the government.
Central Government in Dec, 2019 gave ‘in-principle’ approval for strategic disinvestment of 33 CPSEs including subsidiaries, units and Joint Ventures with sale of majority stake of Government of India and transfer of management control. Also, companies like IRCTC, Rites Limited and Coal India Limited in recent times have tried to meet MPS requirements via Offer for Sale.
Due to Covid-19 pandemic, the stock market has already crashed and is now showing small signs of revival. Where listed companies are unable to comply with normal regulatory requirements in this current environment which are constant and urgent in nature, the extension in its 4th attempt to the PSCs will save them from the badge of non-compliance.
As per the norms, exchanges can impose a fine of up to Rs 10,000 on companies for each day of non-compliance with MPS requirements. Besides, exchanges can intimate depositories to freeze the entire shareholding of the promoter and promoter group.
SEBI Proposal For Large Initial Public Offer :
Recent Update for Companies under IBC :
Presently, during Corporate Insolvency Resolution Process (CIRP) where the public hareholding falls below 10%, such listed companies are required to bring the public shareholding to at least 10% within a period of 18 months and to 25%within 36 months. In this context, the Board has decided the following in respect of companies which continue to remain listed as a result of implementation of the resolution plan under the Insolvency and Bankruptcy Code:
i.Such companies will be mandated to have at least 5 % public shareholding at the time of their admission to dealing on stock exchange, as against no minimum requirement at present.
ii.Further, such companies will be provided 12 months to achieve public shareholding of 10% from the date such shares of the company are admitted to dealings on stock exchange and 36 months to achieve public shareholding of 25% from the said date.
Blog by Nimish Maheshwari & Sudarshan Bhandari
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