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India proposes higher minimum public shareholding in listed companies

Abhirup Roy and Promit Mukherjee

MUMBAI, July 5 (Reuters) - India proposed raising the minimum public shareholding required in listed companies to 35% from 25%, in a surprise move that triggered concerns there will be a lot of enforced share sales.

The proposal by Finance Minister Nirmala Sitharaman in her maiden union budget speech on Friday pushed the stock market down, despite India announcing a tighter fiscal deficit target and lower-than-expected borrowing.

Expectations of a flood of shares being sold could provide a supply overhang for the market and undermine share prices.

The need to increase public shareholding would result in companies having to offer approximately 1 trillion Indian rupees ($14.61 billion) in shares currently owned by controlling shareholders to the public, said Rajiv Singh, CEO of stock broking at Karvy Stock Broking Ltd, a financial services firm.

The government, however, did not say whether the public shareholding hike would be applicable to existing listed firms or over what time period they would expect it to happen.

"If it is made applicable to existing listed companies, we estimate that this will perhaps impact close to 20% of all listed companies," said Vivek Gupta, partner and national head of mergers and acquisitions and private equity taxation at accountants KPMG in India. "That will need substantial capital - which may not be readily available," Gupta added.

Major companies which have a large shareholding by either their founders or owners are information technology giant Tata Consultancy Services Ltd and Wipro Ltd, state-owned mining giant Coal India Ltd, and consumer products group Hindustan Unilever Ltd among others. ($1 = 68.4440 Indian rupees) (Reporting by Abhirup Roy and Promit Mukherjee; Editing by Martin Howell and Himani Sarkar)