Sebi against giving sick PSUs leeway in public holding

Govt has sought exceptions citing difficulties to sell stakes in beleaguered companies in such market conditions

The Securities and Exchange Board of India (Sebi) is not in favour of a government proposal calling for exemption to sick state-owned companies from complying with the minimum public shareholding requirements. The government has sought exceptions for public sector units (PSUs), saying it’s tough to sell stakes in beleaguered companies in such market conditions.

Sebi feels the rules should be applicable to all companies, including even public sector ones, as private firms were not given any leeway after many of them failed to cut their promoter shareholding below 75 per cent by June 3. Also, Sebi did not give any concession to even companies whose trading is suspended.

The government is required to cut its holding in state-owned companies below 90 per cent before August 8.

“We didn't give any exemptions to private companies. There won't be any leeway for public companies as well,” said a senior Sebi official, when asked whether Sebi would exempt sick PSUs from the compulsory 10 per cent public float requirement. The government has sought exemption for companies such as Scooters India, Andrew Yule, HMT and Hindustan Photo Films, said people in the know.

Last month, the market regulator had passed an order against 105 private companies, including 33 suspended ones, for failing to adhere to the minimum public shareholding norm.

A senior official from the Department of Disinvestment (DoD) told Business Standard it would bring down government holding in most PSUs before the deadline but it would be difficult to conduct stake sale in companies under the Board for Industrial & Financial Reconstruction (BIFR).

The government has to prune its stake in a dozen PSUs before August 8 to comply with Sebi's requirement. Hindustan Copper, National Fertilizers, Neyveli Lignite and State Trading Corporation (STC) are among the companies where the government will divest before the deadline. According to sources, the DoD is consulting investment bankers to find a solution for sick companies.

“The Centre is exploring various options including revival packages, induction of strategic investor or amalgamation with another public sector undertaking (PSU) for sick companies,” said a banker with knowledge of the development.

The government is already in the process of readying revival packages for HMT, ITI and Andrew Yule. The banker said the Centre is examining whether any sick PSU can be amalgamated with another well-performing PSU in a related business, on the lines of the merger between Bharat Heavy Electricals (BHEL) and Bharat Heavy Plate & Vessels (BHPV).

BHPV, which was declared a sick entity by BIFR in 2005, will be merged with capital goods major BHEL post shareholder approval.

A company is declared sick if its accumulated losses equal its entire net worth or exceed half its average net worth during the preceding four years.

Trading in a company is suspended if it fails to comply with listing agreement or doesn’t make any filings according to Sebi regulations.