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Govt re-revises public holding norms
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Posted On :
Sep-14-2010
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Article Word Count :
705
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The finance ministry’s decision is being applauded as a practical one considering the current absorbing capacity of the market as well as the prevailing market conditions.
Though the flexibility to dilute the remaining amount over the spread of the three years will definitely provide a breather to the companies, but in turn will also slow down the process of stake dilution. In which case, the government’s motive to contain volatility in the market place that spawns from manipulation stan
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The government has exempted the public sector undertakings (PSU) from the 25% public float norm. The PSUs will now need to maintain a minimum public float of only 10%. However, the norm remains unchanged for the private players with the exception that they will now have the flexibility to choose the manner to reach the 25% threshold, against the annual 5% increase as per the current rules.
Rationale
The government has been looking to divest stake in the public sector holdings in a bid to raise money to deal with the fiscal deficit. Additionally, the finance ministry has also been looking to strengthen the public float norms in order to curb market volatility that results from manipulation. The announcement on June 4, 2010, was in lines with the same.
However, the government has had to make amends towards state-owned listed companies. The government-owned listed companies have huge market capitalization, and the market will not be able to absorb the issue of fresh equity in order to meet the 25% float criteria. Additionally, the issues from the listed PSUs will end up sapping up the liquidity from the market and may not leave any room for absorption from fresh divestments. In addition, the government will not benefit from the proceeds of fresh issues from already listed PSUs.
Impact on PSUs
The amendment holds importance in the wake of the fact that, norms announced on June 4, 2010, faced criticism on the grounds that the market does not have the appetite for so many offers and a flood of issues may lead to the dampening of market sentiment. The new float norms will lead to a substantial reduction in the number as well as amount of public issues expected to hit the market. The market will now see issues from 15 PSUs with the 10% public holding norm against 35 PSUs which were to meet the 25% norm. All in all the amendment has garnered a positive response from the public sector entities.
Impact on Private players
The amended norm significantly lowers the expected float in the markets to a total issuance of about USD 9.4 bn over FY11-FY15 from USD 32 bn. In addition to freeing up capital for new planned listings, the relaxation on annual tranches also implies that companies can now time their capital raising activities over the period of three years, depending on market conditions. Some of the big issuances from the private players are expected to come from sectors like:
IT services:
a) Wipro
b) Oracle Financial
Real estate
a) DLF
Utilities
a) Reliance Power
b) JSW Energy
Capital goods
a) Mundra Port
Impact for the investor
The inclusion of the flexibility option for companies in choosing the mode and time for issue of equity in order to meet the decided threshold will be a dampener and will beat the government initiative to control and monitor market volatility and curb manipulation in the medium term. More aggressive and stringent timelines were essential since this was one of the prime objectives for increasing the float for the companies in the private sector. Hence, in the near term the decision does not seem positive for the retail investors.
Conclusion
The finance ministry’s decision is being applauded as a practical one considering the current absorbing capacity of the market as well as the prevailing market conditions.
Though the flexibility to dilute the remaining amount over the spread of the three years will definitely provide a breather to the companies, but in turn will also slow down the process of stake dilution. In which case, the government’s motive to contain volatility in the market place that spawns from manipulation stands defeated, more so in the near term.
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Article Source :
http://www.articleseen.com/Article_Govt re-revises public holding norms_32931.aspx
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Author Resource :
The author is Business Editor. Visit at www.religareonline.com to read more such stories.
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Keywords :
public holding norms, Govt re-revises public holding norms, online share trading, Share trading, Online Commodity Trading, Commodi,
Category :
Finance
:
Finance
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