The finance ministry plans to exempt large unlisted companies from the proposed 25% minimum public holding norm to ensure that it does not discourage them from going public. Large companies could be allowed to list with a 10% offer to the public, but will have to raise public holding to at least 25% over a prescribed period.

“We are exploring the option of exempting large companies from the minimum public holding rule,” said a finance ministry official privy to the discussions.

The official did not specify the basis of deciding companies that will be eligible for the exemption. It could be based on the turnover, net worth or issue size.

A relaxation in listing norms will benefit public sector companies that are expected to tap the market. The government is planning a slew of listings this year as part of its efforts to raise Rs 40,000 crore from sale of its stake in public sector firms.

This exemption dilutes the basic intent of the law, but there is some justification, said Jay Shankar, chief economist with Religare Capital Markets.

“The market may not have that kind of appetite when a large company, say for instance BSNL or Coal India, hits the market,” he said.

The minimum public holding rule, expected to be notified soon, says all listed companies must achieve at least 25% public holding over a prescribed period and continue to maintain that limit for continuous listing.

Even now, companies are required to offer at least 25% shares to public at the time of an IPO, but some relaxations have been provided to companies in sectors such as telecom, software, media and infrastructure. This is used by many companies to skirt the minimum requirements.

A public offer of more than Rs 100 crore and of at least 20 lakh shares can list with only a 10% offer. One of the arguments against making a 25% float mandatory for all listed companies is that the market could be flooded with shares of listed companies, putting pressure on new offerings.

Indeed, some of the recent large divestments by the government in state-owned companies have found it difficult to attract sufficient interest. Some stake sale by the government in mining company NMDC and power utility NTPC struggled to sail through.

“This is necessary for the economic stakeholders and players to gain confidence in the system, and the system itself to function smoothly and with credibility. The current situation warrants such an exemption,” Mr Shankar said.

Finance minister Pranab Mukherjee had proposed a 25% minimum public shareholding in his budget speech in July 2009. “The average public float in Indian listed companies is less than 15%. Deep non-manipulable markets require larger and diversified public shareholdings. This requirement should be uniformly applied to the private sector as well as listed public sector companies,” he had said. But, the new rule is yet to be implemented.

These last-minute changes in the rules are currently being finalised by the finance ministry in discussions with the law ministry and stock market regulator Sebi. The ministry is hopeful of notifying it by June.

The new rule will also define clearly what public holding means. All non-promoter holding is at present considered as public holding.

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