An imminent deadline for raising the minimum public shareholding in listed companies could revitalize India’s equity markets
In August 2007, the Blackstone Group acquired 50.1% of Gokaldas Exports, an Indian listed company based in Bangalore, from its promoters. This triggered an open offer by Blackstone for an additional 20% of the company’s shares which was held by public shareholders.
As a result, Blackstone currently holds nearly 70% of Gokaldas Exports and the company’s promoters have 20%. Public shareholders own a little less than 11%. However, this will need to change if the company is to comply with a Ministry of Finance mandate that requires all listed companies – other than state-owned or public sector companies – to have to have a minimum public shareholding of 25% by 3 June 2013.
This requirement was put in place through two amendments made in June and August 2010 of the Securities Contracts (Regulation) Rules, 1957, which details requirements that companies must satisfy to list their securities. The routes by which companies are to raise their public shareholding are specified by the Securities and Exchange Board of India (SEBI).
Thinking out of the box
Gokaldas Exports, which has been grappling with depressed global markets and lower margins in the garment industry, attempted to achieve the 25% requirement through a novel route.
It recently sought the permission of SEBI to reclassify the founders of Gokaldas Exports – the Hinduja family – as public shareholders, arguing that they were no longer on the board or involved in day-to-day operations of the company. SEBI has objected to this route for achieving the mandated minimum public shareholding. The holdings of a promoter, promoter group, subsidiary or associate of a company cannot be considered as a public shareholding.