Regulatory Updates: SEBI- Circular on Minimum Public Shareholding

SEBI vide its circular dated 22 February 2018 has provided the following methods for complying with the Minimum Public Shareholding (MPS) requirement:

  1. Open market sale of shares held by the promoters/promoters group up to 2% of the paid-up equity share capital of the listed entity in the open market subject to five times average monthly trading volume of the shares of the listed entity.
  2. Qualified Institutions Placement (QIP).

QIP offers a quick solution to listed entities enabling them to meet MPS requirements apart from meeting their funding requirements. Also, a sale of a certain small percentage of shares through the open market will facilitate quicker and cheaper compliance for listed entities where promoters hold shares marginally above the threshold limit.
Rule 19A of the Securities Contracts (Regulations) Rules, 1957 stipulates that every listed company shall maintain a public shareholding of at least 25%. Listed public sector companies have been provided additional time till 21 August 2018 to comply with the requirements.

Accordingly, listed entities that have a public shareholding of less than 25% are required to adopt any of the certain methods to comply with the MPS requirements, such as issuance of shares to public through prospectus, offer for sale to public through prospectus, Sale of shares held by promoters through secondary market, Institutional Placement Program, rights issue to public shareholders, bonus shares to public shareholders, open market sale and QIP.