RPT-UPDATE 2-India sets 25 pct minimum float for listed firms

Mon Jun 7, 2010 8:11am IST



(Repeats story issued late on Friday)

* Firms not meeting rule have to lift public float 5 pct/yr

* $60 bln in equity may be sold in coming yrs-Prime Database

* Rule could further crowd pipeline for Indian share sales

* DLF, NTPC, Wipro are index firms that don't meet rule (Adds details, quotes)

By Pratish Narayanan and Prashant Mehra

MUMBAI, June 4 (Reuters) - India on Friday set out new rules requiring listed companies to have a public float of at least 25 percent, a move which could prompt tens of billions of dollars in share sales and further crowd the pipeline for new issues.

Listed companies with a free float of less than 25 percent must increase it by a minimum of 5 percent a year, the government said in a statement.

The new rule could force companies to raise as much as $60 billion by selling stakes over the next few years, according to an estimate by Prithvi Haldea, chairman and managing director of Prime Database.

By comparison, Indian companies raised about $20 billion in equity last year in a market that rose about 80 percent. The main index is down 2 percent so far this year.

Among companies in the 30-share benchmark BSE index, realty firm DLF (DLF.BO), power producer NTPC (NTPC.BO) and software services firm Wipro (WIPR.BO) have a public float of less than 25 percent, according to Bombay Stock Exchange data.

"This is not a good situation, because there is already a glut of issues lined up in the market," said V.K. Sharma, head of private broking and wealth management at HDFC Securities.

Earlier this year, investment bankers forecast that India could see equity issuance of roughly $30 billion in 2010, but poor markets have led some companies to defer their plans.

For a list of Indian companies expected to make an IPO this year, see [ID:nSGE6360AZ]

"We don't expect any dramatic fallout because the government has allowed time to increase the limit," Sharma said.

Friday's rule change should give a boost to investment banks in a competitive market where deals are often crowded with multiple underwriters and fees tend to be low.

"It's a good move for increasing market depth and liquidity. Companies could adopt various routes to meet these new norms. The fund raising activity should pick up in the next two years," said Anil Ladha, head of capital markets at ICICI Securities.

Several multinational firms that have listed their Indian units on local exchanges and retained more than a 75 percent stake may choose to delist, HDFC's Sharma said.

Honeywell Automation India (HONE.BO), Alfa Laval ALFA.BO and Novartis India (NOIN.BO) are among firms with a public float of less than 25 percent which are controlled by an overseas parent.

The Indian government is implementing a plan to sell down holdings in 60 state firms over the next few years, and the new rule may force share sales in additional state companies.

Regulators had been discussing raising the minimum float for the past few years.

Unlisted firms that go public with a post-issue market capitalisation of more than 40 billion rupees ($856.5 million) may go public with a 10 percent float, but will have to increase their public float by at least 5 percent a year. ($1=46.7 rupees) (Additional reporting by Sumeet Chatterjee; Editing by Tony Munroe and David Cowell)

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