The Uday Kotak
committee on corporate governance has suggested the government should look at creating an independent shareholding structure for listed public sector undertakings
(PSU) and reduce dependency on administrative ministries.
According to the committee, such a step would be in the best interests of all the shareholders as it would enhance the valuations. It would also help address some of the conflicts of interest situations as the regulator and owner of PSUs are the same entities.
While the committee didn’t make any specific proposals, it suggested broad points for the government to assess.
“The government should assess and examine the broader issues… concerning ownership structure for the government stake, removal of conflicts and creating a more autonomous environment for PSUs to function in the best interest of all stakeholders. The committee believes that this will significantly enhance value of the national assets,” the report said.
The committee was of the view that enhancing the autonomy of state-owned entities would strengthen how the market perceives these entities. A majority of the listed PSUs currently trade at a discount compared to their private sector peers.
The committee also suggested the government spell out clearly the objectives and mandates of the PSUs so that the investor can distinguish clearly between commercial and non-commercial projects.
The committee acknowledged that PSUs face governance challenges due to diverse objectives vis-à-vis their private sector peers but said there was room to enhance governance standards.
“Most PSUs pursue multiple and diverse objectives in line with their broader social welfare objectives, unlike private enterprises which may focus on value maximisation for their shareholders,” the committee said.
The committee also suggested that PSUs should reduce dependence on the administrative ministry to ensure speedy decision-making, functional and operational autonomy, attain commercial goals and attract talent.
Currently, there are 96 listed PSUs in the market and they constitute a little more than 10 per cent of the total market capitalisation in the BSE.
“PSUs play a prominent role in the economic development of our country, and their importance can not only be gauged from their size but also their leadership position in sensitive and strategic sectors of the economy,” the committee said.
(Kotak Mahindra and associates are predominant shareholders in Business Standard Pvt Ltd)