Sebi MPS orders may derail divestment train

At least 11 PSUs have to sell shares by August 9 to comply

The Rs 55,000 crore disinvestment programme is facing a stiff test as the government is racing against time to meet the minimum public shareholding (MPS) norms for the public sector units (PSUs). According to the amended rules, the central government has to bring down its stake in the PSU to 90% or below by August 9.

With just little over a month left for the deadline, at least eleven BSE-listed companies majority owned by the centre are yet to be compliant of the MPS norms. In case of private companies which missed the deadline of June, the Securities and Exchange Board of India (Sebi) had restricted promoters from selling shares or otherwise accessing securities market except for the purpose of compliance of MPS.

By its June 4 order, Sebi prohibited the promoters/promoter group and directors of these non-compliant companies from buying, selling or otherwise dealing in securities of their respective companies either directly or indirectly, in any manner whatsoever, except for the purpose of complying with minimum public shareholding requirement till such time these companies comply.

If the same rule is applied to the central government, which would be the errant promoter in this instance, several marquee share sales such as Coal India, IOC which are lined up by the government to meet the ambitious target may have to be shelved. Though these blue-chip companies are already compliant of MPS, they cannot hit the market because of their smaller sisters.

One grey area that could provide an exit route for government is the interpretation of the phrase “their respective companies” in the Sebi order. If this is interpreted to include all companies of the promoter of the non-compliant companies, then the Rs 55,000 crore sell off goes for a toss. If the meaning is narrowed to only “non-compliant companies” of the particular promoter, as some lawyers do, then the programme survives.

While the government may be hoping for some kind of a relief for an exemption, Sebi, which is already facing charges of discrimination may find it difficult to give any special treatment to the largest promoter, say legal experts.

Last week, personal care products major Gillette alleged that Sebi is discriminating between various companies in front of Securities Appellate Tribunal (SAT). The tribunal asked the regulator to look into all instances of violations. Industry body Assocham also asked Sebi if it will use the same yardstick for PSUs, while seeking lenience for private company promoters.

As of today, the government owns over 90% in Neyveli Lignite (93.6%), India Tourism Development Corp (92.1%), Hindustan Copper(94%), State Bank of Mysore (92.3%), HMT (98.9%), National Fertiliser(97.6%), State trading Corp (91%), Fertisers and chemicals Travancore (98.6%),  ITI (93%), Andrew Yule  (93.3%) and Scooters India (95.4%).

Even if the sales start immediately, the government would have to sell two-three companies every week to meet the deadline. But the government seems to be in no great hurry.

A look at the disinvestment department’s website shows that in many cases the process has not even started. Selling of government stakes follows a stipulated process and has its own timeline. After the cabinet approvals are taken for sale of stake in a particular company, the department of disinvestment issues a request for proposal for appointment of intermediaries such as investment bankers/selling brokers and legal advisers.

This process itself takes anywhere between two-six weeks. According to the divest.nic.in, at present the process for appointment of brokers for sale has started only for National Fertilisers. Among the rest, State Bank of Mysore has filed an offer document with Sebi for an Institutional Placement programme.  

According to an estimate by Kotak in May, the sale of additional stake in these companies could fetch up around Rs 1,500 crore. For example, Hindustan Copper has a market capitalisation of Rs 7,605 crore. A sale of 4% excess stake in the company would fetch the government a little over Rs 300 crore. Similarly Neyveli Lignite stake is worth Rs 350 crore. ITDC and HMT stakes are valued at around Rs 200 crore at the current market prices.

While investment bankers say that some of these are illiquid scrips, which may be difficult to sell, private promoters point out that no relaxation was shown to them on these grounds as even firms suspended from market faced the same Sebi orders.

Regulatory quagmire

• Sebi banned 105 private promoters for non compliance of minimum public shareholding norms
• Eleven PSUs non-compliant as on date
• Only one of them has initiated sale process
• Deadline ends on August 9
• Missing deadline would lead to a Sebi ban on government, the promoter
• This could derail disinvestment programme