5% public float a must post CIRP: Sebi

The Securities and Exchange Board of India (Sebi) on Wednesday mandated that the companies emerging from insolvency proceedings must have at least a 5% upfront public shareholding, if the resolution process has resulted in the public shareholding falling below 10%.

The move is aimed at curbing volatility and manipulation in the share prices of these companies. The regulator said these companies would be given 12 months to achieve a public shareholding of 10% from the date their shares are admitted for re-trading on the exchanges and 36 months to reach 25%.

To facilitate the upfront 5% public float when trading commences, Sebi has relaxed the lock-in rules on the shares held by the resolution applicant. The lock-in on equity shares allotted to the resolution applicant, under the resolution plan, shall not be applicable to the extent required to achieve 10% public shareholding within 12 months. Currently, companies are given 18 months to bring up the minimum public shareholding to 10% and 36 months to reach 25%.

Abhay Bhalaik, partner – Algo Legal, observed that although there is a change in promoters, the regulator wants the basic ethos of a listed company should be maintained. Moin Ladha, partner – Khaitan and Co, said that while a higher public float in listed companies ensures fair price discovery and prevents manipulation, achieving a 5% public float pre-listing and balance subsequently has multiple challenges around effective market for dilution, uncertainty regarding future liquidity, market conditions and volume of the relevant scrip.

Companies must make regular disclosures to the exchanges on specific details of resolution plan, including details of assets post-CIRP and other material liabilities imposed on the company..

Sebi’s board also approved a proposal to do away with the applicability of minimum promoters’ contribution and the subsequent lock-in requirements for the issuers making a further public offer (FPO), provided the company’s equity shares were frequently traded on the exchanges for three years, has complied with listing and disclosure rules for three years and has redressed 95% of investor complaints.