Indian state-run firms to remain exempt from public shareholding norms: Govt

The government's move to ease the  minimum public shareholding rules for companies owned by the Centre and states,is likely to increase interest in the  divestment of IDBI Bank Ltd. A similar exemption was granted to PSUs earlier when they could not meet the MPS norm despite multiple extensions, however IDBI Bank is not categorized as  a PSU as the government’s stake in the bank is less than 51% as of now.

New Rules
The new rules state that companies owned by the Centre and the states will be exempted from having a 25% non-promoter shareholding over a period of time. Other listed companies however will have to comply to the new rule.

“The central government may, in public interest, exempt any listed entity in which the central government or state government or public sector company, either individually or in any combination with others, hold directly or indirectly, majority of the shares or voting rights or control of such listed entity, from any or all of the provisions of this rule," according to a notification released by the Finance ministry on Tuesday.

The exemption provided to government owned listed entities will remain valid for a specific period irrespective of any change in control of the entity, the notification by the Ministry said.

The new rule is aimed at limiting the number of PSEs owned by the Centre to a minimum in strategic sectors and to make the govenrment exit the non-strategic sector businesses.

IDBI Divestment

LIC and the Central government hold majority stake in IDBI bank, on October 7 the Centre sought to sell  a total of 60.72% stake in the bank, including 30.48% from the government and 30.24% from LIC, along with the transfer of management control in IDBI Bank and invited Expression of Interest for the same, the Financial Express reported.

As of now the public holding in IDBI Bank is around 5.28%. After the stake is sold  both the government and LIC together will still have a 34% residual stake in the lender. The 34% stake will  be further distributed into a 19% stake held by LIC and a 15% stake held by the government.

The deadline for the submission of the the expression of interest(EoI) from potential investors is fast approaching as January 7 nears. The amendment to the minimum public shareholding rules on Tuesday is likely to ease the process of divestment.

As of now the exact period of the MPS exemption granted to IDBI bank is not known. The period will be known when the government shares the draft share purchase agreement (SPA) with the shortlisted bidders according to a report by the Financial Express.

IDBI's eligibility for the MPS exemption granted to PSU's depends on Sebi's categorisation of the stake left with the Centre once the bidding is done. The bidder would then have to offload  7 -10% of the bank's stake to meet the public float norm of 25%.

Additionally a rule introduced by the Sebi on December 5,2022 states that “The (Sebi) Board may after due consideration of the interest of the investors and the securities market and for the development of the securities market, relax the strict enforcement of any of the requirements of these regulations, if an application is made by the Central Government in relation to its strategic disinvestment in a listed entity.”