SEBI suggests changes in public float standards for companies under insolvency

(Commercial Representative) Mumbai, Ta. 20 August 2020, Thursday

The Securities and Exchange Board of India (SEBI), the regulator of the capital market, has issued a discussion paper outlining three options for companies under insolvency to increase public float in a faster manner.

Under SEBI norms, listed companies are required to maintain a minimum public shareholding (MPS) of 5 per cent. But companies that are under the Insolvency and Bankruptcy Code (IBC) are relieved by the rule. If the MPS falls below 10 per cent due to new fund-raising by such companies, they are allowed to raise the threshold to 18 per cent and increase it to 5 per cent in three years.

Companies whose MPS is less than 5 per cent, but more than 10 per cent, are required to bring it down to 3 per cent in three years from the date of decline. Shares of incoming investors remain locked-in for one year.

SEBI has suggested three options based on the recommendations of the Primary Markets Advisory Committee (PMAC). At the time of re-listing of their shares in a post CIRP companies, the public float should be required to be at least 10 per cent. The second option is to achieve the 10% threshold in six months instead of 18 months.

The third option is for companies to do public float with 5 per cent MPS after relisting, 10 per cent in 12 months and 5 per cent in the next six months. This discussion paper suggests eliminating the one-year lock-in requirement to help achieve MPS compliance. SEBI has invited comments by September 15.

SEBI had recently decided to reconsider the MPS norms after seeing the volatility in share prices following the re-listing of interest soybean stocks in January this year. Ruchi soybeans rose an extraordinary 3% in just six months after being listed on the stock exchange again.