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Listed companies non-compliant with minimum public shareholding norms

In June 2010, the SCRR Rules were amended to the effect that all public companies, listed or proposed to be listed, shall mandatorily be required to have at least 25% public shareholding (with the exception of PSUs which needed to have at least 10% public shareholding). Existing listed companies with public shareholding less than 25% were given three years to comply with the minimum public shareholding limit i.e. by June 2013 and PSUs were given time until August 2013. As the deadline for compliance approaches, promoters of Indian listed companies have been clamoring to offload their excess shareholding through various routes to comply with the revised norms prior to June 2013.



SEBI had allowed companies to take either one of the routes (viz., follow-on offering, offer for sale by promoters (OFS), institutional placement program (IPP), bonus/rights issue excluding the promoters) to comply with these requirements. Any company that wanted to take any other route than those prescribed by SEBI had to take the regulator’s permission before doing so.



More than 25 of the large/mid cap listed companies have already complied with the revised norms in the last one year. Given the run-up in stock prices towards end of last year and relative ease of use of the OFS process compared to other prescribed methods, most companies opted for the OFS route for complying with the SEBI norms, prominent among them were companies such as Reliance Power, Adani Power, Jaiprakash Power Ventures, DB Corp, NTPC, NMDC and Oil India. However, a few companies such as Godrej Properties and Godrej Industries opted for the IPP route. Gammon Infra opted for the bonus issue route given very low excess promoter shareholding whereas Wipro opted for the restructuring/demerger route post permission from SEBI. The more creative ones like Gokaldas Exports and Gillette India have tried to prune their excess shareholding by reclassifying their existing promoters as non promoters, which of course SEBI has objected to. However, the Gillette case is still subjudice as on date. Many companies have also opted for a combination of these routes to comply with the revised requirements.


However, based on shareholding pattern as of December 31, 2012, our analysis of the top 500 companies of the BSE500 index suggests that there are 40 companies yet to be compliant with the minimum public shareholding norms. Out of this there around 8 are public sector units and 32 are private companies. Out of the 32 private companies, 5 of them are companies that got listed with a post issue capital of more than Rs 4,000 crores and hence have three years post listing to adhere to the revised norms. 10 of these companies are listed subsidiaries of MNC firms. The total value of stocks that need to be diluted by all the remaining companies prior to August 2013 amounts to approximately Rs 17,494 crores, out of which Rs 13,210 crores need to be offloaded by promoters of private companies (including Rs 3,246 crores by listed subsidiaries of MNC companies) and the remaining Rs 4,284 crores need to be offloaded by public sector units.



                                                       
Listed companies non-compliant with minimum public shareholding norms
Name
Mkt Cap
(Rs. Crs.)
Promoter
Holding (%)
Offer Size
(Rs. Crs.)
Date to
Comply
Private Sector Companies
Wipro
110,576
78.29
3,638
Jun-13
DLF
47,011
78.58
1,683
Jun-13
Adani Ports and Special Economic Zone  
29,220
77.50
730
Jun-13
AdanI Enterprisei
24,553
77.23
548
Jun-13
Sun TV Network
16,883
77.00
338
Jun-13
JSW Energy
9,775
76.72
168
Jun-13
TataCommunications
6,508
76.15
75
Jun-13
Jaypee Infratech
6,111
83.27
505
Jun-13
Jet Airways India
4,376
80.00
219
Jun-13
Fortis Healthcare
4,040
81.48
262
Jun-13
Essar Ports
3,765
80.30
200
Jun-13
Bombay Rayon Fashions
3,265
93.15
593
Jun-13
OMAXE
2,602
89.14
368
Jun-13
Mahindra Holidays & Resorts India
2,328
82.69
179
Jun-13
PuravankaraProjects
2,145
89.96
321
Jun-13
Tata Teleservices Maharastra
1,727
77.72
47
Jun-13
BGR Energy Systems
1,496
81.13
92
Jun-13

Listed MNC Subsidiaries
Oracle Financial Services Software
24,712
80.31
1,312
Jun-13
Berger Paints India
6,685
75.54
36
Jun-13
Gillette India
6,468
88.76
890
Jun-13
3M India
4,174
76.00
42
Jun-13
BOC India
2,482
89.48
359
Jun-13
AstraZeneca Pharma India
1,958
90.00
294
Jun-13
Novartis India
1,863
76.42
26
Jun-13
Fresenius Kabi Oncology
1,858
81.00
111
Jun-13
Thomas Cook
1,056
87.10
128
Jun-13
Timken
946
80.02
47
Jun-13

Public Sector Companies
MMTC
30,515
99.33
2,847
Aug-13
Neyveli Lignite
11,912
93.56
424
Aug-13
Hindustan Copper
10,524
94.01
422
Aug-13
National Fertilizers
2,990
97.64
228
Aug-13
State Bank Of Mysore
2,734
92.33
64
Aug-13
HMT
2,543
98.88
226
Aug-13
RashtriyaChemicals & Fertilizers
2,427
92.50
61
Aug-13
State Trading Corpn.
1,197
91.02
12
Aug-13
Total Private Sector Companies Size to comply by June 2013 (Rs. Crs.) 13,210
Total Public Sector Companies Size to comply by Aug 2013 (Rs. Crs.) 4,284
Total Size to comply by Aug 2013 (Rs. Crs.) 17,494

Many of the above mentioned private sector companies have committed to reduce their promoter shareholdings to comply with the SEBI guidelines prior to the deadline. Companies such as DLF, Adani Enterprises, Fortis Healthcare, Mahindra Holiday and Resorts India, Puravankara Projects, Berger Paints, Gillette India, AstraZeneca Pharma India and Timken India have already announced stake sale either through the OFS or IPP route and is expected to complete the same prior to the end of this quarter. 

Some of these companies have also experienced high volatility in stock prices and a significant drop in stock prices in the past few months compared to movements in the overall index. Some of the listed MNC subsidiaries that chose to comply with the SEBI norms by reducing their stake through the OFS route instead of the delisting route were also affected significantly since the stock prices of these companies had shot up in the past on delisting expectations.

Some of the stocks that experienced significant volatility and downward stock price performance:
Company Name
Stock Price Performance
Stock Volatility

1 Month
3 Month
1 Month
3 Month
Public Sector Companies
MMTC
-40.86%
-52.97%
28.05%
29.01%
Hindustan Copper
-10.47%
-24.82%
14.52%
16.11%
National Fertilizers
-11.66%
-23.24%
14.50%
16.92%
Rashtriya Chemicals & Fertilizers
-15.21%
-20.64%
9.19%
13.67%
Neyveli Lignite Corp
-14.20%
-14.46%
8.01%
12.55%





Listed MNC Subsidiaries
AstraZeneca Pharma India
-41.59%
-48.15%
16.65%
21.19%
Timken India
-16.10%
-22.24%
9.43%
14.09%
Gillette India
-15.05%
-19.07%
8.20%
10.28%
Thomas Cook India
-10.95%
-18.54%
8.75%
11.28%
Novartis India
-9.25%
-15.07%
6.70%
7.98%





Private Sector Companies
Adani Enterprises
-10.66%
-15.78%
13.22%
21.11%
Jaypee Infratech
-8.34%
-12.36%
15.29%
21.80%
Mahindra Holidays & Resorts India
-7.17%
-14.11%
8.05%
11.84%
Fortis Healthcare
-5.23%
-9.33%
6.92%
11.84%





BSE 500 Index
-3.54%
-3.64%
3.96%
5.48%

Compared to a drop of around 4% and volatility of around 6% in the overall index in the past three months, these stocks have fallen between 10%-50% and have experienced volatility of around 10% -30%. Investors should watch out for these stocks as well as other stocks in the list which are yet to announce any corporate actions to reduce their promoter share-holding prior to the deadline.

 Source: InGovern Research Services
The full article can be downloaded from here
This article has been published with permission of Mr. Shriram Subramanium @ingovern.com

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