Mumbai: The government will not seek any relaxation in listing norms from the capital markets regulator Securities and Exchange Board of India (Sebi) so as to avoid any delay in its divestment plan for state-owned firms.
Top government officials told Mint that the government doesn’t require any special exemption from Sebi as the department of public enterprises (DPE) and the ministries concerned have expedited the process of recruiting independent directors for the state-owned firms for which public offerings have been scheduled this year.
Under clause 49 of the listing norms, the number of independent directors in a firm should be at least one-third of the board if it has a non-executive chairman, and not less than 50% if the chairman has executive powers. Most government-owned firms do not conform to this norm, but are in the process of filling up the vacancies fast as they do not want to miss the opportunity to tap the market. There has been speculation that the government could approach Sebi for relaxing the rule in order to meet its target in terms of the money it expects to raise from disinvestment this year.
“We don’t require any special relaxation from Sebi for companies that are scheduled to float public issues this year. There will be no delay in our divestment plans,” said Sumit Bose, secretary, disinvestment ministry.
According to him, state-owned companies in which the government planned to sell some of its stake this year, and the ones which did not have the required number of independent directors, are now filling up the vacancies with the help of DPE and the ministries concerned.
“Things are running as per schedule, and we can expect the public offering of Engineers India Ltd (EIL) by the end of this month,” he added.
Hindustan Copper Ltd will complete the process of hiring book-running lead managers next week while Coal India Ltd (CIL) is getting ready for its initial public offering. The initial share sales in all three firms are planned during the current quarter ending September.
“We are asking the companies to fill up the vacancies as soon as possible. For those companies who have announced their plans to tap the market, the process should be faster,” said a DPE official who did not want to be identified.
To speed up the process, DPE currently has a database of 86 chief executives, 89 professors and academicians, 104 retired government executives, and 80 chartered accounts and cost accountants who can be tapped for directorships. Instead of searching for independent directors on their own, state-owned companies can choose from this database.
Under normal circumstances, the selection process for such directors in state-owned firms is a long-drawn-out one. Typically, a company looking for an independent director sends a notice to the concerned ministry first, which forwards it to a government-appointed search committee consisting of the chairman of the Public Enterprises Selection Board (PESB), the secretary of DPE, the secretary of the administrative ministry, the CEO of the concerned firm and non-official members.
Between 2006 and 2008, the search committee and PESB recommended names of 387 persons for appointment as independent directors.
Another 67 names were added to the list in the first 10 months of 2009.
According to Prithvi Haldea, chairman and managing director of Prime Database, a Delhi-based primary market tracker, the power to appoint independent directors should be delegated to boards of individual companies. “This will make the process faster and efficient,” he said.
Haldea pointed out how the delay in appointment of directors delayed the public floats of Oil India Ltd and NHPC Ltd last year. “Such delays could lead to the issues missing an appropriate time to list when the market cues are positive. Sebi insists on compliance of clause 49 only at the times of raising capital. It should be made a continuous requirement,” he added.
The government wants to raise Rs40,000 crore by selling part of its stake in state-owned firms in the current fiscal—the biggest and most ambitious target in the history of the disinvestment programme that started in 1992.
After SJVN Ltd’s Rs1,079 crore issue, EIL was expected to enter the market with a Rs1,100 crore public issue in June, but the issue has been delayed due to inadequate number of independent directors on its board.
The EIL issue will be followed by that of CIL, the largest ever float in the Indian capital market. Hindustan Copper, Steel Authority of India Ltd, Power Grid Corp. of India Ltd and Indian Oil Corp. Ltd have got the cabinet’s approval for public issues this year.
An individual aged between 45 and 65 years is eligible to become an independent director if the person holds a graduate degree from a recognized university and has a proven track record from industry, business or agriculture. These persons should have experience as a chairman and managing director or a managing director in the private or public sector, a professor in an academic institution, or as a chartered accountant.
Persons having experience of at least 10 years at the level of joint secretary and above in the government can also be considered for the post of an independent director.
There are three kinds of directors on the boards of Central public sector enterprises— functional, nominee and independent directors. According to DPE, the number of functional directors (including chairman and managing director) should not exceed 50% of the actual strength of the board, and the number of nominee directors appointed by the government is restricted to a maximum of two.
There are around 250 Central government-owned enterprises and a majority of these firms are profitable. The government intends to grant more autonomy to large public sector enterprises on condition that their boards are professionalized by inducting adequate number of independent directors.