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Indian Regulator Recommends State-Run Firms Raise Public Shareholding; SEBI Says the Government Should Cap its Stake in Listed Companies at 75%

Indian Regulator Recommends State-Run Firms Raise Public Shareholding

SEBI Says the Government Should Cap its Stake in Listed Companies at 75%

MUKESH JAGOTA And KENAN MACHADO

June 19, 2014 9:56 a.m. ET

NEW DELHI—India’s stock market regulator recommended Thursday that state-controlled companies be required to sell at least 25% stakes to the public.

The Securities and Exchange Board of India said it wants to close the loophole that allows state-run firms to remain listed even if only 10% of their shares are held by the public.

The regulator recommended the government take three years to sell down its stakes in listed companies to less than 75%.

The market may soon be flooded with the stocks as there are 36 state-run companies in which the government holds a stake of more than 75%.

“We would also see good offerings from (state-run) companies to bring their holdings in line with the public holding norms,” said Girish Nadkarni, head of investment banking at Motilal Oswal Investment Advisors Ltd.

India’s largest mining company Coal India Ltd. 533278.BY -1.94% , metals traderMMTC Ltd. 513377.BY +2.21% , India’s largest steelmaker Steel Authority of IndiaLtd. 500113.BY -2.45% , lignite mining company and power producer Neyveli Lignite Corp. 513683.BY +0.31% Ltd. and tractor and watchmaker HMT Ltd.500191.BY +3.40% are a few of the big firms that would have to sell shares to comply.

The new requirement would help the government raise money and give investors a bigger voice in how the companies are managed.

As part of a legacy of its socialist past, most of India’s biggest mining companies, oil and gas firms and power producers are government-owned.

Almost every year India falls short of its privatization target as ministries and public sector unit managers don’t want to give up control of the companies. Acceptance of a new minimum public shareholding rule could at last force the firms to privatize further.

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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