New Delhi: In order to reduce the scope of price manipulation on bourses, the Finance Ministry on Friday proposed to make it mandatory for companies listed on stock exchanges to maintain a minimum public holding of 25 per cent.
"For a company to be listed and continue to be listed, it must have a public stake of 25 per cent," the Finance Ministry said while releasing a discussion paper on 'Public Holdings for Listing'.
"The larger the number of shares and the number of shareholders, i.e., the larger the public float, the less is the scope for price manipulation," the paper said. The proposed guidelines assume significance as many companies are just diluting about 10 per cent of their stake through public offers at a high premium.
Close to 10 per of more than 2,000 actively traded stocks at BSE and NSE have a non-promoter holding of less than 25 per cent.
The Finance Ministry discussion paper further said a large number of shareholders was essential for the sustenance to provide liquidity to the investors and to discover fair prices of shares.
It pointed out that if for any reason, the public holding reduces below 25 per cent, it would be the responsibility of the promoters, management and the company to ensure that the public holding is increased above the threshold limit within three months.
The Ministry proposed that the market regulator SEBI should be entitled to take enforcement action, including delisting of the shares, in case the company fails to increase the public holding to 25 per cent limit within three months.
Making a case for defining the word 'Public', the Finance Ministry discussion paper said, "If public means non-promoters and includes FIs, FIIs, MFs, employees, NRIs/OCBs, private corporate bodies, etc., the floating stock would be insignificant."
It pointed out that only 13.35 per cent of the equity of the NSE listed companies (As on June 30, 2007) is held by public despite reservation of 35 per cent for retail investors at the public issue stage.
Quoting the NSE data, the paper said, the Indian promoters held as much as 48.35 per cent of equity followed by FIIs (10.53 per cent) and foreign promoters (6.97 per cent).
The Ministry also wanted that the discrimination between a government and non-government company should be done away with at least for the purpose of listing requirements.
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