Analysts say the government's relaxation of 25 per cent public shareholding norm for listed companies is a relief for markets and the move is likely to benefit some large forthcoming issues like that of Coal India and Steel Authority of India Limited.
"We believe that the significantly lower capital issuance of $9 billion (compared to $32 billion previously) would be a relief for the markets-the move seems to acknowledge the capacity of the market to absorb large forthcoming issues like that of Coal India", brokerage house Religare Capital said.
According to Religare, the revised announcement implies a significantly lower cash call on the markets -- from $32 billion over FY11-FY15 expected earlier to a total issuance of $9.4 billion over the same period (with $4.6 billion coming in from public sector units as against $26.3 billion earlier).
The government last Monday relaxed the two- month-old 25 per cent public holding norm for public sector companies, a move that analysts say would prevent the flooding of capital market with public issues and bring down the requirement of fund-raising by these companies.
"The diluted shareholding norms acknowledge the capacity of the markets to absorb paper (Rs 40,000 crore or Rs 400 billion budgeted this year) and realpolitik that is the politically-sensitive mega- offering of Coal India", Religare Capital said in a research note.
Echoing a similar view, Delhi-based SMC Capitals' Equity Head Jagannadham Thunuguntla said, "This is a quite sensible and practical decision by the government, taking into account the absorbing capability of the market and the prevailing market conditions.
"Otherwise, there would have been stampede of public issues causing enormous stress both on primary as well as secondary markets", he added.
"The revised norm will help some large public issues like that of CIL, PowerGrid and SAIL, as they will now get more attention", Thunuguntla added.
State-owned Coal India Ltd is coming out with its initial public offering, which is billed to be India's biggest issue, and the government expects to raise about Rs 15,000 crore (Rs 150 billion) via this issue.
CIL, the world's largest coal producer, has already filed the draft prospectus with market regulator Securities and Exchange Board of India for IPO, which could be launched in October.
"Overall, the revision in shareholding pattern will be in benefit for all the market participants.
It will be helpful for big forthcoming issues to attract investors", Bonanza Portfolio assistant vice president Avinash Gupta said.
The government in early June this year had announced changes in the Securities Contracts (Regulation) Rules 1957, so as to ensure that all listed companies maintained a minimum public float of 25 per cent.
It said the existing listed firms having less than 25 per cent public holding would have to reach the stipulated levels by an annual addition of not less than 5 per cent to public holding.
"The new rule had raised concerns (that)there will be a deluge of share sales from government-owned firms to meet the minimum 25 per cent public shareholding requirement", said brokerage house ICICIDirect.
Under the new relaxed norms listed state-owned companies having less than 10 per cent public stake will now have three years to reach the threshold of 25 per cent public holding.
The modified rules are also a breather to private sector companies.
While they will have to comply with the minimum 25 per cent public float within 3 years, they now have more flexibility in achieving the target as the condition of a minimum 5 per cent annual increase has been scrapped.
