Govt seeks to tweak laws for faster PSU stake sale

Govt seeks to tweak laws for faster PSU stake sale

Mumbai: The government wants to divest its stake in unlisted public sector enterprises in the form of private placements with up to 49 investors even as it scrambles to meet its asset-sale target amid low investor appetite for public floats in a bear market.

However, it wants the listing of firms after such divestments, and this can be done only after the current securities regulations are amended.

The government has sent a proposal along these lines to the Securities and Exchange Board of India, or Sebi, and is expecting a favourable response from the regulator shortly, a finance ministry official said.

Essentially, the government is trying to fast-track disinvestments in public sector undertakings by bypassing the conventional route that also takes longer as it involves filing a prospectus with Sebi.

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An email sent to the regulator did not elicit any response.

“We have approached Sebi to consider a mechanism to treat private placement of equity shares of PSEs (public sector enterprises) to less than 50 investors as a public issue," Sidhartha Pradhan, additional secretary, department of disinvestment, ministry of finance, said on Tuesday.

He said the government will do everything possible to meet its fiscal year-end target of 40,000 crore from disinvestments. Till now, it has been able to raise only 1,144.55 crore through a follow-on public offer of Power Finance Corp. Ltd.

As per the Companies Act, the issue of securities to more than 49 investors amounts to a public issue and this requires the filing of a prospectus with the market regulator and a subsequent listing.

According to Sebi regulations on the issue of capital and disclosure requirements, allotments cannot be done unless there are at least 1,000 allottees in a public issue. The sale of stakes to less than 50 investors is known as a private placement and such a process denies the public any ownership in these companies.

Securities market lawyers said such a mechanism will require the amendment of securities contract regulations by the government. Sebi has some flexibility in exempting “strict enforcement" of requirements mandated in the regulations.

“Whether Sebi can reverse the well-established law, especially for the public sector companies under this power, is doubtful. Besides, listing cannot occur unless at least 10% of the equity is with the public," said Sandeep Parekh, founder of Finsec Law Advisors. “Securities laws have it that you can come out with a public offer only via filing a prospectus. They are seeking an exemption from fundamental Sebi premises and I think it will be difficult."

The government is planning to divest its stake to investors via closed-envelope bidding.

Declining tax collections and the burden of subsidies are widening the country’s fiscal deficit. In the mid-year review, finance minister Pranab Mukherjee admitted that meeting the 4.6% fiscal deficit target outlined in his February budget will not be easy. Analysts expect the fiscal deficit to be at least 5.1% of India’s gross domestic product for 2012. The government has already raised its borrowing programme in the second half of the year to bridge part of the shortfall.

As of November, central PSEs constituted around 21.23% and 21.69% of the total market capitalization of companies listed on BSE and the National Stock Exchange, respectively, according to the official website of the department of disinvestment. Among PSEs, Oil and Natural Gas Corp. Ltd had the highest market cap on Wednesday at 2.15 trillion.

In fiscal 2011, the government raised close to 37,000 crore through seven divestments, including Coal India Ltd’s 15,199.45 crore initial public offer.