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How public are our listed companies?
August, 09th 2007

The fruits of listing should not be made available with scant public participation.

How private is our private sector, fumed the late Aditya Vikram Birla more in angst at the height of Indias tryst with socialism when, by exercising the convertibility clause written into every loan agreement as a matter of course, our public financial institutions came to hog sizeable shareholdings in assisted companies and started breathing down the necks of their promoters in the boardrooms.

In public interest

Today, one may ask a similar question in a different context: How public are our public companies? To be more accurate, the question ought to have been: How public are our listed companies?

But accuracy sometimes is sacrificed at the attractive altar of alliteration. Be that as it may, the news of the entry of a third Indian national to the exclusive, elite club of trillionaires, Mr K. P. Singh whose company DLF caused a splash in the primary market by offering a Rs 2 share at Rs 525 and who with his family owns as much as 88 per cent of the paid-up capital of the company has brought this question once again to the fore.

To be sure, this development is not without a parallel. Perhaps, Mr Singh has followed the footsteps of Mr Azim Premji who, together with his family members, controlled about 77 per cent of the voting power at the last count.

The issue of sparse public ownership in listed companies throws up a couple of vital questions for debate.

With promoters hogging the lions share of the holdings resulting in floating shares available for trading in the bourses becoming scarce, how much of the price earnings (PE) multiple commanded by the company is attributable to the fundamentals of the company?

Of course this question is a subset of the larger question about the real worth of a share when the predominant reason for its spiralling quotations is too much money chasing too few shares which is what has been happening with the Sensex shares. But it assumes greater relevance in the context of companies with as little as 15-20 per cent floating shares.

Second, what credibility such anointments (being catapulted to the exclusive club of rich men and women) carry when valuations have been knowingly or unknowingly thus manipulated, that is, by sitting tight on lions share of the stocks.

Scant public participation

The most important question however is: Why the market regulator SEBI is taking this lying down.

The fruits of listing should not be made available with such scant public participation. The norm of 25 per cent public participation mandated by the Securities Contracts (Regulations) Rules 1957 is followed more in breach through the simple expedient of coming out with a public offer for more than Rs 100 crore that confers a huge concession to the wannabe listed companies the public participation requirement is scaled down to 10 per cent.

Incidentally, this relaxation was allowed only to the new economy ICE shares but was later extended to all companies in the name of democratisation. The bottom-line of course is the exception has now become the norm which invariably happens in our country where people take a foot when an inch is given.

Listing is meant for easy and convenient exit of investors who otherwise cannot sell their shares. It also serves the purpose of price discovery. These two hoary objectives should not be allowed to be sabotaged by winking at the thinly disguised stratagems of scheming promoters.

S. Murlidharan
(The author is a Delhi-based chartered accountant.)

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