If the government uses the stake sale route through stock exchanges to reduce its holding in state-run companies, it will go against the key objectives of the disinvestment policy, as it would not give retail investors a chance to participate.
On Tuesday, the Securities and Exchange Board of India (Sebi) had allowed promoters to reduce their stake in companies through institutional placements or offer for sale of shares via stock exchanges to comply with the minimum public shareholding requirement. The stock exchange route can be used by promoters of top 100 companies in terms of market capitalisation, for sale of their stake.
The move is expected to benefit the government, which aims to raise Rs 40,000 crore through selling its stake in state-run companies and comply with the minimum 10 per cent public shareholding requirement, but will go against its disinvestment policy, experts say.
The state-run companies in which the government holds more than 90 per cent include MMTC, HMT, National Fertilisers, Neyveli Lignite, RCF, State Bank of Mysore and STC.
In the institutional placement mechanism, Sebi has mandated a reservation of at least 25 per cent to mutual funds and insurance companies. This means there will be an indirect participation of retail investors if the government chooses this route to reduce its stake to 90 per cent. However, there will not be any retail participation in the stake sale through the stock exchange window.
“If the government chooses to use this method, that can probably put pressure on one key objective of disinvestment. That means, the wide distribution of PSU shares among retail investors may not be possible under this new mechanism of offer for sale through the special (stock exchange) window,” says Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities. The buyers on the stock exchanges will be large institutions,” he adds.
In 2010, a lot of new retail investors had made good money by investing in Coal India’s initial public offer (IPO), which gained over 40 per cent on its debut. “Managing the fiscal deficit seems to be the government’s priority at present. Once that objective is met, hopefully, they will introduce a new mechanism for participation of retail investors in the disinvestment programme,” Thunuguntla adds.
According to the salient features of the government’s disinvestment policy, listed on the website of the department of disinvestment, citizens have every right to own part of the shares of public sector undertakings, which are the wealth of the nation, and this wealth should rest in the hands of the people.
Sebi Chairman U K Sinha defended the move, saying the two new methods introduced by the regulator for promoters to bring down their holding to comply with the minimum public shareholding requirement was taken keeping in mind the retail investors’ interest.
“Right now, given the market conditions, if companies want to take the follow-on public offer route, share prices will fall further. If we don’t open any other avenue, Sebi believes, retail investors’ interest will get adversely affected. That’s why Sebi has introduced these two new methods,” he said on the sidelines of an event in Mumbai on Wednesday.
In the past, it has been noticed that once the pricing of an FPO of a state-run firm has been announced, the stock price falls due to the discount offered.
“This is a good move by Sebi, though retail investors will not get a chance to participate. There must be some practical approach to meeting the deadline of complying with the minimum public shareholding requirement,” says S P Tuslian, an independent equity analyst.
According to the minimum public shareholding norms, the state-run companies could have a minimum public shareholding of 10 per cent and the private sector companies are to have a minimum public shareholding of 25 per cent. The companies have to comply with these guidelines by June 4, 2013.