The next 14 trading days will see $2 billion (Rs 11,000 crore) of equity sales by companies in a bid to meet a June deadline on minimum public shareholding, says BNP Paribas.
In a report, ‘Free Float — Near Term Hiccup For Some’ BNP Paribas said the stock prices of some of these companies are likely to come under pressure.
On June 4, 2010, the Ministry of Finance announced that listed Indian companies must have free float of at least 25 per cent to be complied with by June 3, 2013. The guideline was modified to include a minimum 10 per cent free float for public sector companies (PSU) to be complied with by August 8.
“This guideline has created an asymmetrical situation between sellers of equity (i.e. company promoters) and potential buyers (secondary market investors). The promoters have to sell by a certain date, but the buyers are not forced to buy … This, in our view, creates downside risk to the share prices of companies that need to increase free float,” it said in a report dated May 15 and authored by Manishi Raychaudhuri and Gautam Mehta.
“… it is a significant quantum to be completed in a 14-trading-day period. However, not all companies will opt for selling equity in the market through OFS (offer-for-sale) or other routes. Some may shift promoter group shareholdings to independent trusts, like Wipro did,” said the report.
BNP Paribas screened for companies that need to sell at least 10 per cent of outstanding equity and have a market cap of at least $200 million.
Accordingly, nine companies could face ‘significant corrections’ around the time of share sale, the report said and added: “We highlight the recent correction in Oracle Financial’s and Gillette India’s share prices as good examples of this theory in action.”
Interestingly, 80 per cent of the amount to be raised is from the 15 largest companies by market capitalisation. They include MMTC, Oracle Financial, Gillette India and Adani Ports.