Mandatory 25% Free Float on Listed Companies

The amendment details, as promised by the Finance Minister, regarding the minimum public shareholding threshold of 25%, are outlined below.

The salient features of the amendment are as follows:

1. a) The minimum threshold level of public shareholding will be 25% for all listed companies.
2. b) Existing listed companies having less than 25% public shareholding are required to reach the minimum 25% level by an annual increase of not less than 5% in public shareholding.
3. c) For new listings, if the post-issue capital of the company calculated at the offer price is more than ₹4,000 crore, the company may be allowed to go public with 10% public shareholding and comply with the 25% public shareholding requirement by increasing public shareholding by at least 5% per annum.
4. d) Companies whose draft offer documents are pending with the Securities and Exchange Board of India on or before the notification of these amendments are required to comply with the 25% public shareholding requirement by increasing public shareholding by at least 5% per annum, irrespective of the post-issue capital size.
5. e) A company may increase its public shareholding by less than 5% in a year if such increase results in achieving the 25% public shareholding level in that year.
6. f) The requirement for continuous listing will be the same as the conditions applicable for initial listing.
7. g) Every listed company shall maintain public shareholding of at least 25%. If public shareholding falls below 25% at any time, the company must restore it to 25% within a maximum period of 12 months from the date of such fall.

Effects of mandatory 25% free float —

– Listed Indian companies will have a minimum free float of 25%, compared to the earlier minimum requirement of 10%.

– Companies with less than 25% free float will need to sell at least 5% of outstanding equity each year, achieving the mandated 25% level over a maximum period of three years.

– Companies planning to list may sell a minimum of 10% equity through IPOs if market capitalisation exceeds ₹4,000 crore, but must still increase free float to 25% within three years.

– Free float enhancement to 25% could lead to additional equity supply worth approximately USD 31 billion from existing listed companies.

– A further surge in equity supply could occur if large public sector undertakings such as Coal India and BSNL are listed.

– Some companies may witness upward re-rating, while others could face downward valuation pressure due to increased supply.

– Higher free float leading to improved liquidity and institutional interest may act as a positive catalyst for select stocks. Companies such as SAIL, Power Grid, and Power Finance Corporation may fall into this category.

SEBI’s mandatory 25% public shareholding rule increases market liquidity and transparency, impacting stock supply, valuations, and long-term investor participation.

Disclaimer

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