SEBI Proposes Separate Delisting Mechanism For PSUs

SEBI Proposes Separate Delisting Mechanism For PSUs

SEBI has noted in its consultation paper that due to government ownership, several PSUs have low public shareholding, outdated business models or weak future outlook and higher market prices than actual value.

In a bid to ease the process for companies with low public shareholding and outdated models, SEBI has put forward a separate mechanism for voluntary delisting of PSUs in which the government or promoter group holds 90% or more shares.

Presently, delisting is successful if promoter shareholding reaches 90 per cent. Moreover, many pricing metrics like 60-day average price and highest price in the last 26 weeks are used to calculate the floor price for delisting. High market prices despite low book values or weak financials can make delisting expensive for PSUs due to this. SEBI has noted in its consultation paper that due to government ownership, several PSUs have low public shareholding, outdated business models or weak future outlook and higher market prices than actual value. As such, it is financially difficult for the government to delist such companies.

Considering these downsides and to aid delisting of such PSUs, the SEBI has proposed a separate mechanism. Under this, the SEBI has reportedly put forward that “only those PSUs, whose aggregate shareholding of promoter / promoter group along with the other PSUs equals or exceeds 90 per cent of the total issued shares of the company, may be eligible for delisting through this separate carve out mechanism.” Furthermore, delisting of these PSUs can take place without meeting minimum public shareholding rules. The SEBI has recommended that delisting can occur at a fixed price at least 15 per cent premium over the floor price, irrespective of trading frequency. The market regulator has recommended that the requirement for two-thirds public shareholder approval in cases where the promoter plus PSU holding is already 90 per cent be done away with. With respect to exit price to public shareholders, the SEBI has suggested that the current pricing formula based on market price and book value among others be continued with. Else independent valuer may be used to determine price based on book value, comparable trading multiples, discounted cash flow method and other industry-specific metrics. As far as handling unclaimed money goes, the SEBI has suggested that such money be transferred to the stock exchange for seven years and then moved to the Investor Education and Protection Fund (IEPF) or the SEBI’s IPEF. Investors can claim the amount during this period. Public comments have been sought by the SEBI on its proposals till May 26.