“Having a 10 per cent public float pre-listing has multiple challenges around effective market for dilution, issues surrounding future liquidity, and lastly effectively monitoring the actual status of these shareholders as public. The regulator would certainly need to relook at the timelines proposed. Dilution and public participation are dependent on market conditions and volume of the relevant scrip,” said Moin Ladha, partner, Khaitan & Co.
The move to seek higher float was triggered by the eye-popping rise in shares of Ruchi Soya Industries. The company's shares had surged more than 450x after it got relisted following the acquisition by Pantanjali Ayurved under CIRP. Upon relisting, the company had less than 1 per cent shareholding with the public. Several experts criticised the move by exchanges and Sebi
to allow the stock to trade with such ultra-low free float.
Higher free float or broad ownership in a listed company is desirable as it ensures fair price discovery and also helps prevent manipulation. Experts said Sebi’s proposals are a step in the right direction but one will have to think of more ways of achieving the goal.
Jitesh Shahani, partner, L&L Partners, said: “The challenge in either of these scenarios would be finding market interest to achieve such dilution, and firms with strong brands or which benefit from a favourable industry or fundamental economic cycle could be expected to do better.”
The current regulations mandate a one-year lock-in on incoming promoter shares. Sebi, however, has proposed to relax this rule. Raj Bhalla, partner, MV Kini & Co, said there is scope for misuse if new proposals are implemented. “To do away with the lock-in requirement of one year may not be a good option, considering there will be chances of an increase in resolution bids by participants, who want to purchase stressed firms at cheap prices to only sell them immediately after relisting without any restriction. This may effectively fail the process of resolution under the IBC.”
So what are the other options? “Sebi can restrict trading in the stock or impose a lower threshold of circuit breakers until MPS reaches, say, 5 per cent or 10 per cent,” said Shahani.
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