Letter to BS: Rs 250 billion disinvestment deadline draws near

This refers to “Rs 250 billion disinvestment deadline draws near” (June 27). While the deadline for the few listed public sector undertakings (PSU) for meeting the minimum 25 per cent public shareholding norm nears, it is likely that the deadline will be extended. Meanwhile, the Securities and Exchange Board of India (Sebi) may consider tweaking the said 25 per cent minimum public shareholding norm for listed PSUs.

It is stated that rationale behind minimum public shareholding requirement is to provide liquidity to the investors and to discover fair prices — the larger the public float, the less is the scope for price manipulation. However, what is misunderstood is that larger public holding in terms of percentage doesn’t reflect a healthy public float until and unless large numbers of shares are held by the public. In order to curb price manipulation and ensure liquidity, a number of shares are necessary to be distributed to a large number of shareholders. 

In an entity with a significant public interest like a listed company, a minimum 25 per cent holding by the non-promoter group becomes mandatory to protect the interest of minor shareholders and avoid possible mismanagement. But such a provision in government companies can easily be done away with. Even though discrimination between government and non-government companies prima facie does look unfair, considering the larger interest at stake, a few rationale discrimination can be acceptable.

Nilabh Mahanta  New Delhi

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