Tag - free float

June 2010

Mandatory 25% Free Float on Listed Companies

The Amendment details as promised by the Finance Minister , for minimum threshold of 25%, to the public shareholding is here

The salient features of the amendment are as follows:

a)The minimum threshold level of public holding will be 25% for all listed companies.

b)Existing listed companies having less than 25% public holding have to reach theminimum 25% level by an annualadditionofnot less than 5% to public holding.

c)For new listing, if the post issue capital of the company calculated at offer price is more than Rs. 4000 crore, the company may be allowed to go public with 10% public shareholding and comply with the 25% public shareholding requirement by increasing its public shareholding by at least 5% per annum.

d)For companies whose draft offer document is pending with Securities and Exchange Board of India on or before these amendments are required to comply with 25% public shareholding requirement by increasing its public shareholding by at least 5% per annum, irrespective of the amount of post issue capital of the company calculated at offer price.

e)A company may increase its public shareholding by less than 5% in a year if such increase brings its public shareholding to the level of 25% in that year.

f)The requirement for continuous listing will be the same as the conditions for initial listing.

g)Every listed company shall maintain public shareholding of at least 25%.If the public shareholding in a listed company falls below 25% at any time, such company shall bring the public shareholding to 25% within a maximum period of 12 months from the date of such fall.

Effects of mandatory 25% free float —-

– Listed Indian companies have a free float of at least 25% as against the current minimum free float of 10%.
– Companies that have less than 25% free float shall have to sell at least 5% of outstanding equity each year and should attain the mandated level of 25% over a period of three years.
– Companies going to be listed can sell minimum 10% equity in the IPO if the market capitalization is Rs.4000 crore or above. However, they also should raise the free float to 25% over the next three years.
– Free float enhancement to 25% would lead to additional supply of stocks worth $ 31 billion from existing listed companies.
– Another huge round of equity flow could be expected if big PSUs like Coal India and BSNL are getting listed.
– Some companies would be re- rated upward while certain others could face a downward rating.
– Increase in free float leading to rising interest from large buyer, may act as catalysts for a positive rating. Stocks like SAIL, Power Grid, Power Finance Corporation etc.  can fall in this category.