Centre wants sick PSUs out from free float norm

Last Updated: Wed, Oct 31, 2012 19:50 hrs

The government plans to seek an exemption for sick public sector undertakings (PSUs) from compliance with the mandatory public shareholding requirements.

The finance ministry is likely to ask the equity markets regulator Securities and Exchange Board of India (Sebi) to give exemptions to companies such as HMT, Scooters India and Andrew Yule, which have either undergone or are currently undergoing rehabilitation with the Board for Industrial and Financial Reconstruction (BIFR).

A senior official with the Department of Disinvestment (DoD) told Business Standard it would be difficult for PSUs that were sick or under BIFR purview to comply with the public shareholding norm. He added action had already been initiated to bring down government holding to the required level in the remaining companies.

Currently, government has over 90% holding in 13 PSUs
  Govt holding
(in %)
Mkt cap
(Rs cr)
Stake to be offloaded
(Rs cr)
MMTC 99.33 71,270 6,649
Hindustan Copper 99.59 23,149 2,220
Neyveli Lignite 93.56 13,730 489
National Fertilizers 97.64 3,745 286
HMT 98.88 3,205 285
FACT 98.56 1,783 153
ITDC 92.11 4,051 85
RCF 92.50 2,968 74
State Bank of Mysore 92.33 2,329 54
Andrew Yule 93.30 638 21
ITI 92.98 672 20
STC 91.02 1,343 14
Scooters India 95.38 110 6
Source: BS Research Bureau

A final list of companies for which exemption is to be sought from Sebi could not be obtained from the DoD.

In the Companies Act, an industrial unit is declared sick if accumulated losses equal its entire net worth or exceed half its average net worth during the preceding four years.

The other condition is a company failing to repay debt in three consecutive quarters after demand is made in writing for such repayments.

Sick companies undergo a rehabilitation package with BIFR. However, the legal process of finalising the package and implementing it is long-drawn and companies take up to a decade to come out of it.

According to the Securities Contracts (Regulation) Rules amendment, all listed companies should have a minimum public holding of 25 per cent by June 2013. PSUs have till August 2013 to comply with this norm, and the minimum threshold for them is just 10 per cent.

Currently, there are about a dozen PSUs with government holding of more than 90 per cent and the value of stake dilution for these companies would be about Rs 10,000 crore in all.

Earlier this month, at a public function, Sebi chairman U K Sinha had said the government had assured it that PSUs will be complaint with the free-float requirement before the deadline. He had even said the finance ministry was on board with it for not extending next year's deadline for achieving the 25 per cent public shareholding requirement.

Some companies such as Neyveli Lignite, Hindustan Copper and Minerals and Metals Trading Corporation, where the government will have to bring down its shareholding below 90 per cent, are already part of this year's disinvestment programme, the target for which is set at Rs 30,000 crore.

By the latest data on shareholding, there are about 125 private companies with promoter holding of more than 75 per cent. These companies will have to offload shares worth a little over Rs 19,000 crore in all to meet the mandatory public shareholding requirement.

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