Sebi approves easier delisting norms for PSUs with 90% government holding

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The capital market regulator Sebi on June 18 board approved proposals to introduce special measures to ease voluntary delisting process for select Public Sector Undertakings (PSUs).

These measures apply to PSUs (excluding banks, non-banking financial companies (NBFCs), and insurance companies) that fall under the supervision of a financial sector regulator and where the combined shareholding of the Government of India and/or other PSUs is 90 percent or more.

The move aims to facilitate the exit of such PSUs from the stock market through a fixed price delisting route, as opposed to the traditional reverse book-building method, which is often influenced by speculative pricing and low public float.

Last month, Sebi had released a discussion paper on the matter and sought comments and feedback by May 26.

Public Sector Undertakings (PSUs) have proved to be a tough nut to crack for the watchdog in terms of compliance with the Minimum Public Shareholding norm that mandates promoter holding to be brought down to 75 percent within three years of listing.

While PSUs have been given extended timelines to comply, data shows that that there are more than 20 government-owned non-compliant companies as on date, with some being listed for more than a decade now - clearly showing a lack of intent in bringing down the government holding to the proscribed limit.

The discussion paper was aimed at creating a relatively lenient delisting framework for only those PSUs where the government holding is 90 percent or more.

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Data from Prime Database shows that there are 10 PSUs with government holding above that threshold, including names like KIOCL, IDBI Bank, Indian Overseas Bank, HMT, Punjab & Sind Bank, State Trading Corporation, UCO Bank, ITI and Fertilisers & Chemicals Travancore.

Market participants believe that a more relaxed delisting regime for PSUs with 90 percent or more promoter holding could lead to the delisting of some of the illiquid companies. It is unlikely that actively traded banks would look at the delisting route, experts said.

Sebi's discussion paper has proposed to abolish the requirement for two-thirds public shareholder approval required for delisting while also proposing that delisting can happen at a fixed price - at least 15 per cent premium over the floor price - regardless of the trading frequency.

Under current rules, delisting is successful if promoter shareholding reaches 90 per cent. Further, the floor price for delisting is calculated using several pricing metrics such as 60-day average price and highest price in the last 26 weeks. These rules make delisting costlier for PSUs due to high market prices despite low book values or weak financials.

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