The central government on Friday proposed several capital market measures such as relaxing know-your-customer (KYC) norms for foreign portfolio investors (FPIs), enabling social sector enterprises to list, and increasing the minimum public shareholding.
These proposals, part of the maiden Budget speech presented by finance minister Nirmala Sitharaman, were made in the context of making India a $5 trillion economy and inviting heavy investment in infrastructure, digital economy, and job creation.
Sitharaman said that in order to invite greater participation from foreign investors, the government will relax KYC norms for FPIs, and merge non-resident Indian (NRI) portfolio investment scheme route with the FPI route to encourage more NRIs to invest in the country’s capital markets.
“Hopefully, this will give some relief to those FPIs who were otherwise sceptical about sharing some of their KYC details and were therefore shying away from the Indian securities markets. The devil will be in the details of such relaxed norms,” said Yogesh Chande, partner, Shardul Amarchand Mangaldas & Co.
The government is also looking to organise and host an annual meet for top global investors and get global industrialists, corporate leaders, sovereign and venture funds on a single platform.
The government intends to deepen corporate bond markets by allowing the use of AA corporate bonds as collateral. It will work with money market regulator Reserve Bank of India and capital market regulator Securities and Exchange Board of India (SEBI) to introduce the new measures.
The government also proposed raising minimum public shareholding for listed entities to 35% from 25%.
The capital markets regulator had first introduced the concept of minimum public shareholding in 2010, and allowed three years to all publicly traded companies – barring state-owned firms – to attain a minimum 25% public shareholding.
"The move must be implemented carefully. Timing, applicability, etc. should be closely evaluated as we do not want this to be another forced sale. Overall, it is a good opportunity for institutional capital and funds,” said Vivek Gupta, partner and national head, merger and acquisition/private equity tax, KPMG in India.
Chande said that the number of offers for sale (OFSes) will perhaps increase to dilute the promoter shareholding from 75% to 65%, as they are faster and cheaper than other options.
He added, “Promoters may also want to explore options to delist companies, unless they are fine with increasing the public shareholding by another 10%. At 65% promoter shareholding, it will be an additional hurdle if a promoter was to attempt delisting, that is, reaching 90% through the book building route from 65%, rather than from 75%.”
According to KRChoksey Shares and Securities Pvt. Ltd, 167 companies on BSE 500 are currently listed at 35% or less public share holdings. Their current market capitalisation is Rs 41.31 trillion and the potential to raise additional capital is Rs 3.69 trillion in these companies at current rates.
