Free-Float Rules Could Boost Indian DRs

Emerging Markets Investor: DR News

By Gordon Platt

India’s finance ministry issued neles in June requiring listed companies to have a public float of at least 25% of their shares. The new rules could prompt a rush of public share offerings over the next few years, including issues of depositary receipts. The finance ministry initially said that shares against which DRs are issued would not count as part of the public float, but it is reconsidering the classification following intensive lobbying by corporations, bankers and overseas exchanges. The Securities and Exchange Board of India, the capital markets regulator, will specify the manner in which the increase in public shareholding is to be achieved.

The government watered down the two-month-old guidelines in August by lowering the minimum public float required of state-owned enterprises to 10% instead of 25%. It also announced that companies could take three years to meet the new public shareholding requirement, instead of increasing it by a minimum of 5% a year.

The government is still planning to sell a 10% stake in Coal India, the world’s largest coal producer, next month, despite considerable delays to the transaction. The sale could total about $2.8 billion, making it the second largest initial public offering in the Indian capital market after Reliance Power’s $2.9 billion IPO in January 2008. The government plans to sell stakes in about 60 state-owned firms in the next few years to help reduce its deficit and enable it to increase spending on infrastructure and social programs.