In addition to the existing methods available for listed companies to meet the public shareholding (free float) requirements of 10% for public sector undertakings (PSUs) and 25% for other companies, SEBI has recently prescribed two other methods. These are (i) the institutional placement programme (IPP) under which a company can increase its public shareholding up to 10% through an offer to qualified institutional buyers (QIBs), and (ii) an offer for sale through stock exchanges where promoters can offload shares through a separate window of the stock exchange for at least 1% of the paid-up capital of the company, subject to a minimum of Rs. 25 crores.
While this will certainly enhance the possibilities for companies to meet the minimum shareholding requirement and make it less onerous for them, there are lingering questions (see here, here and here) on whether this has been specifically catered towards government disinvestments so as to enable PSUs to meet the free float requirement, and how this process could effectively circumvent participation by retail investors as it favours placements with institutional investors.
Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.