Govt's public holding plan for ailing firms gets Sebi go-ahead

Excess stake to be moved to a trust; govt to lose all voting rights on transferred shares

The Securities & Exchange Board of India (Sebi) has accepted the government’s proposal to transfer its shares in loss-making public sector units to an ‘irrevocable trust’, which will sell those at a later date. The move has cleared the way for the government, struggling to find takers for these firms, to comply with the minimum public shareholding norms before the August 9 deadline.

“We have accepted the government’s proposal with some caveats. We wanted to ensure compliance in the Securities Contracts (Regulation) Rules (SCRR),” said a senior Sebi official.

The move will ensure the beleaguered PSUs, including Andrew Yule, Scooters India, HMT, STC and Hindustan Photofilms, The Fertilisers and Chemicals Travancore and ITI achieve the minimum-public-shareholding (MPS) compliance before deadline. The government had sought the market regulator’s permission to move its shareholding in excess of 90 per cent in seven loss-making companies to an irrevocable trust at a token price of Rs 1.

The regulator has told the government it will lose all voting rights on the shares transferred to the trust. Also, such shares will be irrevocable and can be sold to the public at a future date.

The government intends to sell these shares after reviving these firms, where it currently has shareholding between 91 per cent and 99 per cent.

The Centre will now have to sell shares in only National Fertilizers (NFL) — which the Cabinet has already approved — to ensure all state-owned firms have met the SCRR requirement of 10 per cent public float.

The Sebi official said the government’s proposal was similar to the one already approved in the case of technology firm Wipro.

Sebi had allowed the Bangalore-based company to transfer about three per cent shareholding to its philanthropic irrevocable independent trust. The regulator had asked Wipro to sell these shares within two years and had directed it to appoint officials from either public-sector banks or public financial institutions as trustees.