Disinvestment plans likely to get delayed in 21 out of 43 listed companies

Twenty-one out of 43 listed public sector undertakings (PSUs) do not have the required number of independent directors, as stipulated by the Securities and Exchange Board of India (Sebi).

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This comes at a time when disinvestment is high on the government’s agenda and a number of PSU follow-on offers are expected to hit the market. For instance, a follow-on offer of NMDC, which aims to divest 8.38 per cent stake, recently got approved by the Cabinet Committee on Economic Affairs. It plans to raise up to $3 billion (Rs 14,000 crore).

Experts said the issue might take longer than necessary to hit the market. The government will have to appoint independent directors on the boards of these companies before they proceed with the follow-on offers. Other PSUs that are in the race include NTPC, Rural Electrification Corporation (REC) and MMTC. REC has already filed the prospectus with Sebi.

Clause 49 of the listing agreement sets out definition and responsibilities of independent directors, board procedure, tenure of non-executive directors, requirements related to audit committees, role and periodicity of meeting of audit committee and board disclosure-risk management, among other things. As per the norms mandated by Sebi since January 2006, any listed firm must have at least half of its board constituted by independent directors or non-executive directors, if the chairman is an executive. In case the chairman is a non-executive, the rules demand that at least one-third of the board should comprise independent directors.

“Availability of good independent directors is a huge challenge. While there is a lot of demand for good independent directors, private sector companies are able to pay hefty compensation to attract them. PSUs do not agree to the kind of compensation structures that the private sector pays. The compensation has gone up to Rs 30-40 lakh a year for people who are offering professional advice on the board as independent directors. On the supply side, many directors are choosy about the companies they want to join. Getting good and professional advisors to join the board is a major task today,” said Ashvin Parekh, industry leader-financial services at Ernst & Young.
 

It is not just listed PSUs. Even the unlisted ones such as Satluj Jal Vidyut Nigam Limited, which proposes an initial public offer (IPO), and Coal India have been going slow on appointment of independent directors. Two of the major IPOs that came out this year — NHPC and Oil India — were delayed by more than a year as they were unable to meet Sebi criteria on independent directors.

Prithvi Haldea, managing director, Prime Database, said, “It is time that Sebi and the government relooked at this requirement for the PSUs. While Sebi insists on this compliance at the time of an IPO, it has not been able to ensure the same post listing, especially in the case of PSUs. Future IPOs of PSUs that everyone has been waiting for are presently deficient on the number, and if the past is any indication, these IPOs may get delayed because of this reason. PSUs are already subjected to several additional scrutiny/audit from CVC (Central Vigilance Commission), CAG (Comptroller and Auditor General) and Parliament, hence, they should be exempted from this requirement.”

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