Sebi Set To Clear Proposal To Fix Psu Offer Price

The Securities and Exchange Board of India (Sebi) is set to clear a proposal which fixes the price of the open offer to be made by companies acquiring stake in government undertakings at the market price (higher of the last six months average market price or the bid price ) by offsetting the effect of the dividend paid in any of the six months prior to sale.

The proposal, which is to be placed before the Sebi board on January 29, will impact all public sector divestments which trigger an open offer.

Officials said, for instance, consider a company whose average market price for the first five months is Rs 150. The company now pays a Rs 50 per share dividend. Then, the first 5-month average would be taken as Rs 100, offsetting the affect of dividend. If the market price in the sixth month is Rs 80, then the six-month average would be Rs 90 [(Rs 100 + Rs 80)/2]. The offer price then would be the higher of the bid price or the market price as arrived above.

Top government officials said the suggestion is likely to be accepted by the capital markets watchdog in its board meeting on January 29. They said the formula had been arrived at after justice P N Bhagawati's recommendations on open offers were received and discussed with the divestment ministry officials. "Sebi has discussed the fresh proposal and is likely to approve it," a senior official said.

Sebi had earlier refused to exempt strategic partners buying government stake in PSUs from making an open offer of 20 per cent in the market to protect the small investor interests. The open offer clause requires that when management control changes hands, the new partner make a public offer for a minimum 20 per cent stake, allowing small shareholders the option of offloading their stake if they do not want to continue to hold their investment under the new management.

The watchdog has, however, now conceded to the disinvestment ministry's demand to allow swift handing over of management control in case of companies being privatised. It had ruled that management control should be handed over to the strategic partner immediately after the sale deed is signed.

The MoD had initially sought exemption from the clause as in a number of cases if the entire 20 per cent was picked up in the open offer, the floating stake would be so low that companies would have to be delisted. It had suggested reducing the size of the open offer or doing away with the clause completely.

Sebi had, however, pointed out that in case of private-to-private company takeovers too, the same issue was handled using various methods and there was no need to make an exemption for PSUs.