Minimum Public Share Holding :

In June 2010 Ministry of Finance amended the Securities Contract (Regulations) Rules - SCRR 1957. It  increased the minimum public shareholding to 25% in all listed companies.

However in August 2010, the minimum public shareholding for Public Sector Undertaking (PSU) companies was reduced to 10%.

And on 3rd June 2013, SEBI set the deadline for listed companies to achieve minimum public holdings.

The main objective of this landmark amendment are :

• Mimimum public float of 25% is followed in several developed market.
• It is a a precondition for efficient price discovery and ensuring reasonable market depth.
• Larger public share holding ensures transparency and accountability.

Just like exam dates, only when the deadline was announced by SEBI, did these companies start working on divesment either by Follow on public offer (FPO). or Offer for Sale (OFS) or Institutional placement program (IPP). Of these, OFS was widely used by these companies. OFS is offered only on stock exchanges - and that too for only one day. OFS can be used only for diluting promoters equity stake.

45 OFS and 8 IPP riased around US$ 9 Billion in the Indian market. And there 108 companies which failed to hike the public holding. SEBI has slapped HARSH penalties on non complying companies.

And in the last minute rush, many of these companies sold there shares at steep discount to their prevailing market price.

For instance:

MMTC, a PSU in which Government held 99.33% stake, was quoting at Rs.1900 in November 2009.

• In December 2008, it crashed to Rs.470. 
• And in Feb 2013, it was quoting at Rs.590.
• Just before the FPO, MMTC crashed to Rs.211 on 12th June 2013.
• It was then that the Government announced the FPO price of Rs.60 per share, which got marginally oversubscribed.
• Since then this stock has been hitting lower circuit. As on 21st June 2013, it closed at Rs.132.

Similarly in DLF, the company issued 8.1 Crore equity share at Rs.230/share through IPP route to achieve minimum public holding of 25%.

• The price was far lower compared to the price range of Rs.250-Rs.280. 
• Rs.230 itself is a hefty premium since it works out to a PE of Rs.55, the current price of DLF has crashed to Rs.175.
• Ending FY 2013, there is a heavy debt of Rs.15541 Crores on DLF's balance sheet.

But in Sweden based Astra Zeneca listed in India, the scerario is bit different.

• Astrazeneca fixed Rs.490 as OFS price, a steep 39% discount to its market price of Rs.799.
• The OFS was oversubscribed 4.9 times, and the shares were alloted at Rs.567.22
• Post OFS, the share bounced back to 798.
• Right now the stock trades as Rs.696.

Be it excess price or under valuation, the mimimum public share holding excercise is helping in price discovery.

SEBI has already slapped harsh penalties on those stocks which are not complying with minimum share holding:

1.     SEBI has frozen the voting rights and corporate benefits like dividend, rights, bonus shares and stock splits of promoters of the non compliant companies.

2.     This is in proportion to the excess promoter shareholding in these companies.

3.     If the public hold 10% and promoters hold 90%, then the proportionate promoter share holding = 3 times existing public share holding. In this case it is 30%. Hence the excess promoter share holding is 90%-30% = 60% would be forzen.

4.     SEBI order further prohibits promoters from buying / selling / dealing in securities of their respective companies. 

5.     The order restrains these promoter sand directors from holding any new position as directo rin any listed companies.

6.     These clauses are applicable till the time they comply with minimum public share holding.

105 companies are currently slapped with these SEBI orders, of which 33 are already suspended by stock exchange. The other well known names include:

1.     Adani Port and SEZ

2.     BGR Energy

3.     Bombay Rayon

4.     Fairfield atlas

5.     FK Onco

6.     Hubtown

7.     Marathon

8.     Nextgen Realty,

9.     Nagarjuna Agrichem

10.   Omaxe

11.   Parshwanath Corp

12.   Suashish Diamond

13.   Sundaram Claytron

14.   TTML

15.   Transformers and Rectifiers

16.   Videocon