Nearly 87 actively-traded companies, including 75 private entities and 12 state-run units, are yet to comply with the minimum public shareholding (MPS) norms stipulated by the Securities and Exchange Board of India (Sebi).
The Indian market has seen 44 OFSs (offer-for-sale) and eight IPPs (institutional placement programme) worth $9 billion since the announcement of an amendment to minimum public shareholding (MPS) norms.
"We estimate a further sale of around $1.9 billion by June-end deadline as 75 private sector companies are yet to comply with the 25 per cent MPS norms. Another 12 PSUs have to comply with the MPS requirement of 10 per cent by August 2013," Sanjeev Prasad, senior executive director and co-head of Kotak Institutional Equities, said in a report.
In June 2010, the Finance Ministry amended the Securities Contracts (Regulation) Rules, 1957 (SCRR), raising the minimum public shareholding (MPS) requirement to 25 per cent for listed companies or those that proposed to list. Listed companies that did not meet MPS norms would be required to increase public shareholding by at least 5 per cent a year until they meet the norm.
In August 2010, the SCRR was amended again to revise public-sector companies' MPS norms to 10 per cent (from 25 percent) by August this year. Sebi has allowed companies to take either one of the routes: FPO (follow-on public offer), OFS, IPP or bonus/rights issues-to comply with the revised norms.
A company wanting to take any other route must take market regulator Sebi's permission before doing so.
"We estimate that there could be supply of $1.8 billion by June-end and $2.5 billion by August to comply with the Sebi guidelines. This could be near-term headwind to the market rally," Bank of America Merrill Lynch said in its report on investment strategy.
Amongst the large companies, Oracle Financial promoters have already diluted 5.3 per cent, JSW Energy 1.7 per cent and Omaxe 2.9 per cent in May 2013, while Mahindra Holidays, Thomas Cook (India), Fortis Helthcare, DLF have also witnessed stake dilution by promoters in May through IPPs route.
Companies that still need to increase the free float are Adani Ports (Rs 763 crore), Sun TV Netowrk (Rs 323 crore), L&T Finance Holdings (Rs 1,007.8 crore), Oberoi Realty (Rs 273 crore), Gilette India (Rs 961 crore), Mangalore Refinery (Rs 996 crore), Tata Comm (Rs 70.1 crore) and Jet Airways (Rs 253 crore).
The leading PSU companies include MMTC, Neyveli Ignite, National Fertilizer, among others.