Capital Markets Regulator, vide its Circular dated 22nd February 2018 has notified 2 additional methods for complying with the Minimum Public Shareholding (MPS) norms.
As we are aware, every listed Company is mandatorily to have minimum 25% public holding. Even, as on date, there are many a listed companies, which are not able to meet these thresholds. Although, the last date for non PSU companies, has expired long back, but in respect of PSU companies, the time line is till August 2018.
So, with a view to provide enhanced options to these entities, SEBI has now allowed the Promoters of the MPS Non-Compliant Companies to dilute their holding by selling up to 2% stake in the open market and also allowing the companies to issue new shares to Qualified Institutional Buyers in accordance with Chapter VIII of the SEBI (ICDR) Regulation, 2009.
As regards the QIP issuance by MPS non-compliant companies, already with effect from 12th February 2018, an enabling amendment has been promulgated in SEBI (ICDR) Regulations, thereby deleting the MPS compliance as a pre requisite for QIP issuances.
Relevant provisions of the circular in respect of Dilution through Open Market Sale
- Quantum allowed: up to 2% of the total paid-up equity share subject to 5 times’ average monthly trading volume of the shares of the entity.
- Prior Intimation to Stock Exchange: At least 1 trading day prior to every such proposed sale and shall consist of the following:
- Intention and purpose of such selling
- Details of Selling Promoter/Promoter Group
- Total No. of shares proposed to be sold and Percentage thereof
- the period within which the entire divestment process will be completed
- Undertaking that no promoter will buy any shares on the dates on which the shares are being sold by promoter(s)/promoter group.
- There were many a companies that were not able to meet the MPS norms, because they were not fitting into any of the allowed modes. The modes allowed till now included e-Offer for Sale, FPO, E-IPP, Rights Issue / Bonus Issue with Promoters foregoing their stakes.
- The above mentioned new modes will definitely be of help in divesting of the excess Promoters holding.
- Now, the Promoters of such companies will at least have the option of selling their excess stake, subject to the limits specified, in the open market.
- However, certain concern areas that may remain may include the Selling Price (can there be any discounting from the ruling Market Price, to encourage better public participation?), trading to happen during the normal trading hours or under a separate trading session/ window.
- Another issue that these companies may face may be with regard to the 5 times capping. Since these companies, generally are infrequently traded/ illiquid scrips, so 5 times of average monthly trading volume may act as a bottleneck. However, since there is no restriction on number of offers that the Promoters may make, this issue will by and large get resolved.