India sees $57bn share sales on shift in public float rule

TataConsultancy Services Ltd and Hindustan Unilever Ltd are among at least100 Indian companies that may need to sell shares worth billions ofdollars after the government proposed to raise the minimum publicshareholding.Companies must increase shares held by the public to aminimum 35% from 25% at present, Finance Minister Nirmala Sitharamansaid in her maiden budget, asking the market regulator to “mull” theproposal.The rule may result in equity sales of about Rs3.9tn($57bn), creating a supply overhang on the market that’s trading near alife-time high, according to analysts including Centrum Broking Pvt.Theproposal may have another side-effect: it could prompt domestic unitsof multinationals, who don’t rely on local funding, to delist fromexchanges.“The detail to watch out for is the time allowed to meetthis new rule,” said Rajiv Singh, who heads broking at Karvy StockBroking Ltd. “This will mostly impact multinationals and statecompanies, but in the long term, it will help get more retail money inequities.” There are at least 40 state companies with public holdinglower than 35%, he said.This isn’t the first time the government has forced founders to reduce their holdings to boost liquidity.InJune 2010, the regulator gave companies three years to a ensure aminimum public float of at least 25%. That spurred share sales of atleast $1bn in June 2013 alone from companies including propertydeveloper DLF Ltd and JSW Energy Ltd.Exchanges globally have also introduced free-float rules to ensure liquidity for investors in a publicly traded stock.Andindex compilers such as MSCI Inc take into account the percentage ofshares available to investors when determining a stock’s representationin stock gauges. Here’s a table showing some of the large companies thatmay have to sell shares when the proposal gets implemented.“Timingand applicability need to be closely evaluated — we don’t want this tobe another forced sale,” said Vivek Gupta, partner and national head atKPMG in India.Shares in Wipro Ltd slumped 4.2%, the most since March 8.Coal India Ltd slipped 3.7% and TCS ended 3.6% lower on Friday.Here is what the analysts are saying about Sitharaman’s proposal.JagannadhamThunuguntla at Centrum Broking Pvt said 25% of the total companieslisted on Indian exchanges will have to offload stake to meet the newrequirement. The overhang of the proposal can have significant impactand thus regulator needs to provide sufficient time to meet therequirement.Vinay Pandit of Nivesh Securities Ltd said the proposalif implemented can cause several changes in Nifty Index over the courseof two years A lot of insurance and consumer companies will getinvestors attention due to the proposal.Deven Choksey at KR ChokseyShares & Securities Pvt said 167 companies in BSE 500 Index mighthave to sell shares and thus their stock valuations may come under checkif the rule takes effect. Proposal would also boost taxes for thegovernment as 40 of the 167 companies will end up paying about Rs90bn inlong-term capital gains tax at current prices.Anil Talreja atDeloitte India said the proposal will be “fortifying the fundamentals ofgovernance”. “There would be some clarifications expected including ongrandfathering of existing situations.”