PSUs get 3rd lifeline to meet free-float norms, deadline extended by 2 yrs

The Securities and Exchange Board of India (Sebi) has thrown another lifeline to public sector undertakings (PSUs) to achieve 25 per cent public shareholding, a key corporate governance requirement, which private sector listed entities had to achieve by June 2013. 

According to sources, the capital markets regulator has extended the August 21 deadline by another two years. The move comes as a relief to over three dozen PSUs in which the government shareholding is in excess of 75 per cent. At the current market rate, disinvestment of close to Rs 250 billion would have been required if these companies were to meet the minimum public shareholding condition.

This is the third extension 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.

Regulatory sources say while Sebi is responsible for the implementation of the minimum public shareholding requirement, it is the government which has the powers to set deadlines.

The Centre has the powers under the Securities Contract Regulation Rules (SCRR) to provide relaxation to PSUs, a Sebi official said, adding that a new notification in this regard will be issued soon.

The extension in the deadline comes at a time when investor sentiment towards the PSU pack is weak, even as the benchmark indices are hovering close to their lifetime highs. The BSE PSU index, a gauge for the performance of 60 government-owned entities, is down 17 per cent so far this year. In comparison, the Sensex has rallied 11 per cent during the same period.

“The government is of view that this is not an opportune time for divestments. Just to meet the public float requirement, the Centre will have to do distress selling in PSUs,” said a regulatory source.

Market experts believe differential treatment between private companies and PSUs should be avoided.

“This is true not just when it comes to minimum public shareholding guidelines but a number of other areas such as appointment of independent and women directors. Levying any penalties on the President of India, who is the promoter-shareholder, is obviously not a way out,” said Prithvi Haldea, managing director of Prime Database. 

Some of the top PSUs in which the government shareholding is above 75 per cent are Coal India (government stake 78.3 per cent) and MMTC (89.9 per cent). Besides, there are about a dozen banks in which the government shareholding exceeds 80 per cent following capital infusion. Also, there are newly-listed companies such as General Insurance Corp of India (GIC Re), Hindustan Aeronautics and Housing and Urban Development Corporation (Hudco) where the government shareholding is high, but these companies have three years from the listing date to increase public float to 25 per cent.

Analysts say the extension helps remove the “disinvestment overhang” that was weighing on the share price performance of stocks such as Coal India, SJVN and MMTC.

Last week, in a written reply to the Lok Sabha, Minister of State for Finance Pon Radhakrishnan said that of the total 89 listed PSUs, 52 were compliant, while 37 were yet to comply with the 25 per cent minimum public shareholding requirement.

“Instead of extending deadlines after deadlines, we should recognise the hard realities and rather have a special carve out for PSUs,” said Haldea.

The issue of ownership at PSUs was also deliberated by the Sebi’s corporate governance panel led by Uday Kotak. The committee had recommended that the government holding in PSUs should be transferred to a separate holding company to ensure more independence.

As Sebi had no legal jurisdiction to make some of the changes suggested by the panel, it had referred them to the government.