News: The Securities and Exchange Board of India (SEBI) has proposed significant changes to the Minimum Public Shareholding (MPS) and Minimum Public Offer (MPO) regulations for large companies aiming to list on Indian stock exchanges.
About Minimum Public Shareholding
- The Minimum Public Shareholding (MPS) rule is a regulatory requirement established by the Securities and Exchange Board of India (SEBI), under the Securities Contracts (Regulation) Rules, 1957, and is further reinforced by the SEBI (Listing Obligations and Disclosure Requirements) Regulations. These rules are applicable to all listed companies in India.
- Objectives of MPS: The primary objectives of the MPS rule are:
- To enhance liquidity in the stock market by increasing the number of publicly traded shares.
- To promote fair price discovery, as a wider pool of shareholders results in better market efficiency.
- To strengthen corporate governance by ensuring that the company is not dominated by a small group of promoters.
- To encourage broader participation from retail investors and institutional shareholders.
- Applicability: The MPS rule applies to all listed companies in India, irrespective of their size or sector. Both existing listed companies and newly listed companies must adhere to these requirements.
- Requirement: Under the MPS rule, all listed companies must ensure that at least 25% of their total issued and paid-up equity share capital is held by public shareholders, which include non-promoter and non-promoter group entities. This ensures that the public holds a significant portion of the company’s shares, contributing to market liquidity.
- If the promoters of a company hold more than 75% of the equity share capital, they are required to reduce their stake to comply with the MPS rule. This divestment can be done by either placing shares with institutional investors or issuing rights shares to the public. The aim is to ensure that the public shareholding reaches the minimum required level.
- For newly listed companies, the MPS rule mandates that they meet the 25% public shareholding requirement within three years from the date of listing.
For companies with a post-issue market capitalization of over ₹1 trillion, the deadline to meet the 25% public shareholding requirement is extended to five years. - If at any point a company’s public shareholding falls below the required 25%, the company must restore it to 25% within a maximum period of 12 months. Failure to meet this requirement could lead to penalties or other regulatory actions.
- If a company fails to comply with the MPS requirement, SEBI may impose penalties or take corrective action. Additionally, the company could face restrictions on corporate actions, such as mergers, buybacks, or rights issues. Stock exchanges may also take disciplinary measures, which could include fines or the suspension of the company’s shares from trading.
