Public float exemption for PSUs to have riders in privatisation push

The move is to ensure fairness and prevent arbitrary use of latest dispensation provided by the government

The Securities and Exchange Board of India (Sebi), in consultation with the finance ministry, plans to lay down the framework for exempting public sector enterprises from the 25 per cent minimum public shareholding (MPS) norms. 

The move is to ensure fairness and prevent arbitrary use of the latest dispensation provided by the government.

“A framework will be devised to categorise state-owned firms on the basis of which they get exemption along with the time frame to trim the stake,” said two officials in the government.

“It’s not a blanket exemption and will be given on a case-to-case basis,” they added. 

At present, all listed companies have to maintain a minimum 25 per cent public float.

On Saturday, the Centre enabled a provision in the existing norms, saying, “it may, in public interest, exempt any listed public sector company from any or all the provision of this rule.”

It was notified by the economic affairs department of the finance ministry. 

The move has come ahead of the deadline of August 31, where listed firms were mandated to comply with the rule. However, the government notification did not mention any criteria on which a firm can get exemption. 

Explaining the rationale, a source said the new provision would enable the government to decide the timeline, keeping in view the opportune time for disinvestment.

To meet the public float requirement, the government may have to do distress selling of PSUs, which they are not in favour of, he said.

According to industry experts, with privatisation being a top priority for the Centre, such relaxation would generate strong interest from investors for state-run banks that are up for privatisation.

They added, “The acquirer may be given a longer time frame to trim down their stake by 25 per cent. This flexibility may draw the attention of investors.” 

Besides, big companies that are preparing for initial public offerings (IPOs), such as Life Corporation of India (LIC) — which is expected to offer a small portion of shares through public issuance — would also benefit. 

However, LIC is not the immediate beneficiary of this as the market regulator, in February, had already relaxed the MPS norms for such large firms that are opting for listing.

It says that large companies can now divest a minimum 5 per cent in the IPO, instead of 10 per cent. Further, they will get five years, instead of three, to raise the public float to 25 per cent.

Based on the earlier norms, LIC would have been required to divest at least 10 per cent in one go. 

Up to June 30, there are half a dozen state-owned banks — including Bank of India, Bank of Maharashtra, Central Bank of India, UCO Bank, Indian Overseas Bank and Punjab and Sind Bank — in which the government shareholding exceeds 90 per cent. 

Also, in insurance companies — General Insurance Corporation of India (GIC Re) and New India Assurance — government stake is above 85 per cent. Besides, Hindustan Aeronautics and Housing and Urban Development Corporation (Hudco) are also among those who are non-complaint and are above 75 per cent threshold. 

The regulator has been considerate about public sector undertakings to achieve 25 per cent public shareholding, a key corporate governance requirement, which private sector listed entities had to achieve by June 2013.

Multiple extension has been granted by Sebi to PSUs. The initial deadline was to end on August 2014, which was later extended to August 2017. Last year, the deadline was extended by another year to this month end.