Here’s all you need to know about SEBI’s new proposals on minimum public shareholding for companies under CIRP

First, it suggested that post-CIRP, companies should achieve at least 10 percent public shareholding within six months and 25 percent within three years from the date when the shareholding had fallen below 25 percent.

Second, post-CIRP companies should have at least 5 percent public shareholding while relisting. Such firms may be provided a year to achieve public holding of 10 percent and further two years to achieve public shareholding of 25 percent.

Third, post-CIRP companies may be mandated to have at least 10 percent public shareholding at the time of relisting. Such firms may be provided three years to achieve minimum public shareholding of 25 percent.

Sebi’s discussion paper also suggested that the one-year lock-in requirement would be removed to help achieve MPS compliance.

Under the present Sebi’s regulations, the listed companies must have at least 25 percent minimum public shareholding.

However, for companies undergoing an insolvency resolution under the Insolvency or Bankruptcy Code (IBC), the norms mandate that in case public holding falls below 10 percent, then the same will be increased to at least 10 percent within 18 months and 25 percent within three years.

For companies whose MPS falls below 25 percent but is above 10 percent then they need to bring it upto 25 percent in three years from the date when it fell below that mark.

Also, the shares of the incoming investors or promoters under the resolution plan stay locked-in for one year in terms of ICDR Regulations.

The regulator is of the view that low public shareholding raises multiple concerns like failure of fair discovery of price of the scrip and need for increased surveillance measures and may, therefore, be a red flag for future cases.

Low float also prohibits healthy participation in trading of such companies majorly due to issues related to demand and supply gap of shares, Sebi said.

Sebi observed a recent case (Ruchi Soya) wherein post-corporate insolvency resolution process, the public holding decreased to 0.97 percent, and the price jumped over 8000 percent in spite of additional preventive surveillance actions, including a reduction in price band and moving the scrip into trade-for- trade segment.

Sebi has sought comments on the issue till 18 September.