Easier dilution standards for Mega Initial Public Offerings (IPOs) have come into effect, whereby companies with post-listing market capitalization greater than Rs1 trillion are not required to dilute a minimum of 10 %. The move to relax dilution standards is seen as a precursor to the Life Insurance Corporation (LIC) IPO.
The government has stated that companies with market capitalization exceeding Rs 1 trillion will need to dilute Rs 5,000 crore and at least 5% of market capitalization.
Experts said earlier companies discouraged large companies from listing because they had to acquire a large amount of shares when they went public.
In addition, companies re-registered after insolvency proceedings will have to hold a public stake of at least 5%, which will be increased to 10% in one year and 25% in three years, according to the latest. notification from the Ministry of Finance. ministry. Previously, while there was no minimum threshold for public participation at the time of acquisition, it had to be raised to 10 percent within 18 months.
Changes to the rules on securities contracts (regulation) notified by experts from the Ministry of Economic Affairs would ensure a fair price discovery.
Previously, the shares of companies such as Ruchi Soya or Orchid Pharma had seen an astronomical rise, which, according to experts, was due to a negligible float.
âIf the resolution plan provides for continuity of listing, there should be liquidity to keep the price close to fair value. Reasonable time is also given to achieve the 25 percent public participation, in two installments, âsaid Manoj Kumar, Partner, Corporate Professionals.
According to the previous rules, at the time of acquisition, when the resolution plan of a listed company was approved, there was no minimum limit on the public shareholding of a listed company. These companies were required to have a 10 percent public stake within 18 months. The new rules set a requirement for a minimum public stake of 5 percent – allowing the acquirer to repossess a maximum stake of 95 percent.
Experts say that in the event of insolvency, the general principle is that there is no more value in the shares and therefore it is possible for an acquirer to foreclose shareholders in connection with acquisitions of IBC. âBut the acquirer cannot be the sole shareholder of a company and also keep the company listed. If they want it to be listed, they can acquire up to 95% at most and have to leave 5% public float, âsaid Anshul Jain, partner of PwC India.
While the government closed the loophole that allowed companies acquired in insolvency proceedings to re-register with virtually no public participation, some loopholes remain, experts said.
âThis notification is applicable to listed companies acquired through CIRP but if a similar acquisition occurs through liquidation, there is no clear rule that applies. You have to see how the stock exchanges or SEBI would deal with such acquisitions and what the impact would be on public shareholding in such cases, âJain added.