SEBI Introduces Two Methods To Achieve Minimum Public Shareholding

The changes are introduced amid representations seeking relaxation from compliance with the conditions in the existing methods.

<div class="paragraphs"><p>  (Photo: Reuters)</p></div>
(Photo: Reuters)

SEBI has introduced two new methods on Friday for listed public companies to achieve the requirement of minimum public shareholding, as mandated by law.

The minimum public shareholding can now be achieved by allocating shares to employees through the Employee Stock Option Plan, as long as the market regulator's Sweat Equity regulations are followed. This is subject to a 2% equity share limit, with a caveat that no shares are allotted to the company's promoters.

These changes are introduced in the light of numerous representations received by the Securities and Exchange Board of India seeking relaxation from compliance with the conditions specified in the existing methods.

SEBI regulations require a publicly listed company to have a minimum of 25% of its shares held by the public to be eligible to stay listed.

A listed entity can also achieve the requisite public shareholding by transferring shares held by promoters to an exchange-traded fund managed by a SEBI-registered mutual fund, according to the circular.

The firm, however, will have to share the details of the transfer a day prior, to the stock exchanges in which it is listed. Details include information about the promoter, his intention, the number of shares he intends to transfer and the fund that would be receiving the shares.

It would also be required not to buy shares in the fund to which the shares are transferred.

Institutional placement programmes, in which shares are issued to specific institutional buyers as a means to achieve a minimum public shareholding, have been discontinued.

The regulator has also rationalised the sale of shares through open market mechanisms.

In a financial year, the promoters can either sell up to 2% of the total paid-up equity capital as long as it does not exceed five times the average trading volume of the company. Or else, they can sell up to 5% of the total paid-up equity capital as long as it does not exceed the trading volume of the company in the preceding 12-month period.

This is subject to the requirement that there be no violation of the takeover regulations or the unfair trade practices regulations during the process.

To achieve the requirement, SEBI recommends various other means, including the fresh issue of shares to the public, offer of sale through either an open market or exchange mechanism, rights issue to public shareholders, and several others. The company can also approach the board with any other measures and get approval for them.