07 January 2012

Method of public float compliance - SEBI Board

SEBI announced something major last week pursuant to its last Board meeting. While it sounds a bit arcane, the step is important for both listed companies and its investors.

In plain English, regulations mandate a compulsory minimum public float of 25% for all listed companies (of which public sector listed companies can get away with 10% public float). Public float is that share of shareholding which is not held by the promoters and their control group. Till before 2010, companies complied with various levels of public float (10, 25 or 40%). The finance ministry modified it to make it uniform across non public sector (actually it made it uniform across all listed companies but partially backtracked for public sector companies). To increase the share of public and conversely to reduce the share of promoters, the listing agreement (Clause 40A) of both equity exchanges (BSE and NSE) only provide for certain manner of sale or dilution. The SEBI Board has in short liberalised the manner in which the divestment takes place.

This is good for the company, its promoters and its shareholders - as it eases the manner in which stake can be sold or diluted, the manner would be cheaper and subject to more transparency and lower volatility compared to the existing methods.

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