FOCUS: Govt re-revises public holding norms

NEW DELHI (August 16) - The government has exempted the public sector undertakings (PSU) from the 25% public float norm

. The PSUs will now need to maintain a minimum public float of only 10%. However, the norm remains unchanged for the private players with the exception that they will now have the flexibility to choose the manner to reach the 25% threshold, against the annual 5% increase as per the current rules.

Rationale

The government has been looking to divest stake in the public sector holdings in a bid to raise money to deal with the fiscal deficit. Additionally, the finance ministry has also been looking to strengthen the public float norms in order to curb market volatility that results from manipulation. The announcement on June 4, 2010, was in lines with the same.

However, the government has had to make amends towards state-owned listed companies. The government-owned listed companies have huge market capitalization, and the market will not be able to absorb the issue of fresh equity in order to meet the 25% float criteria. Additionally, the issues from the listed PSUs will end up sapping up the liquidity from the market and may not leave any room for absorption from fresh divestments. In addition, the government will not benefit from the proceeds of fresh issues from already listed PSUs.

Impact on PSUs

The amendment holds importance in the wake of the fact that, norms announced on June 4, 2010, faced criticism on the grounds that the market does not have the appetite for so many offers and a flood of issues may lead to the dampening of market sentiment. The new float norms will lead to a substantial reduction in the number as well as amount of public issues expected to hit the market. The market will now see issues from 15 PSUs with the 10% public holding norm against 35 PSUs which were to meet the 25% norm. All in all the amendment has garnered a positive response from the public sector entities.

Impact on Private players

The amended norm significantly lowers the expected float in the markets to a total issuance of about USD 9.4 bn over FY11-FY15 from USD 32 bn. In addition to freeing up capital for new planned listings, the relaxation on annual tranches also implies that companies can now time their capital raising activities over the period of three years, depending on market conditions. Some of the big issuances from the private players are expected to come from sectors like:

IT services:

a) Wipro

b) Oracle Financial

Real estate

a) DLF

Utilities

a) Reliance Power

b) JSW Energy

Capital goods

a) Mundra Port

Impact for the investor

The inclusion of the flexibility option for companies in choosing the mode and time for issue of equity in order to meet the decided threshold will be a dampener and will beat the government initiative to control and monitor market volatility and curb manipulation in the medium term. More aggressive and stringent

FOCUS: Govt re-revises public holding norms

By: Anjali Shukla

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