India may see $53b share sales on government public holding rule

Mumbai: Oil & Natural Gas and Reliance Power are among a sixth of the top 3,000 listed Indian companies that may need to sell $53 billion (Dh194.5 billion) of shares after a new government rule raised the minimum public holding.

Companies must increase shares held by the public to a minimum 25 per cent by selling at least 5 per cent annually, according to an emailed statement from the government's Press Information Bureau on Friday.

The rule may prompt equity sales of about 2.5 trillion rupees among companies including state-owned ONGC, India's biggest energy explorer, and Reliance Power, owned by billionaire Anil Ambani, according to data compiled by Bloomberg. The step will also boost government efforts to reduce stakes in its companies and cut the budget deficit.

"The aim of the government is to have a market that is efficient and liquid, and not susceptible to volatile movements due to thin volumes," said Jitendra Sriram, who helps manage $800 million as head of equities at HSBC Asset Management (India) Private in Mumbai. "A limited float is susceptible to manipulation. The government wants to encourage a wider minority participation to increase the depth of the market."

Budget speech

Finance Minister Pranab Mukherjee had proposed in his July 6, 2009, budget speech that a rule requiring a public float of at least 25 per cent for listed companies should be enforced uniformly, including on state-run companies.

"The move is good for the markets as it will lead to better price discovery and transparency," said Tarun Bhatia, director of capital markets at Crisil Research in Mumbai. "I think the government has given companies a fair timeframe to increase public shareholding and the market should be able to absorb it."

Prime Minister Manmohan Singh's government is seeking to complete share sales in state companies such as Engineers India and Steel Authority of India to raise a record 400 billion rupees this year.

Mukherjee has pledged to shrink the deficit to 5.5 per cent of gross domestic product in the year that began April 1, from a 16-year high of 6.9 per cent in the previous 12 months.

Companies

The top ten among the 526 companies that will need to sell shares are government owned. The shares, if sold at yesterday's prices, will be worth 1.7 trillion rupees, according to data compiled by Bloomberg.

"The government has put itself in a situation where follow-on public offers become the rule and norm," said Jagannadham Thunuguntla, chief strategist at SMC Capitals in New Delhi. "Until now, disinvestment plans have remained a choice for the government."

State-owned Coal India, the world's biggest producer, plans to raise as much as 130 billion rupees in a share sale in July, two government officials said in April. The sale may now take place by September when market conditions improve, Coal Minister Sriprakash Jaiswal said June 2.

"All I can say right now is that the Coal India offer won't be affected," Disinvestment Secretary Sumit Bose said on Friday after the announcement.

For new share sales, if the post-issue capital calculated at offer price is more than 40 billion rupees, the company may be allowed to sell 10 per cent of its equity and comply with the 25 per cent public shareholding requirement by increasing the float by at least 5 per cent a year, the government said in the statement.

At least 29 companies delayed or cancelled equity sales worldwide in May as Europe's debt crisis triggered the biggest decline in emerging-market stocks since October 2008.

"It may be difficult for all share sales to go through as there will be tightening in liquidity," said S. Thiagarajan, director finance at NMDC, India's largest iron-ore producer.