SEBI Proposes Eased Delisting Norms for PSUs with 90% Government Stake

The Securities and Exchange Board of India (SEBI) has proposed a separate voluntary delisting mechanism specifically for public sector undertakings (PSUs) where the government or promoter group holds 90% or more of the total issued shares. A consultation paper outlining the proposal was released on May 7, with public comments invited until May 26.

Why a Separate Framework?

SEBI noted that many PSUs have outdated business models, low public shareholding, or weak outlooks. Despite this, these companies often trade at higher market prices due to investor confidence in government ownership. This misalignment between market price and book value poses a challenge for the government during delisting, as it results in a higher budgetary outlay.

Currently, delisting is considered successful when promoter shareholding reaches 90%, and floor prices are based on the 60-day volume weighted average market price (VWAMP) and other parameters. For PSUs with thin public float and low trading activity, this leads to inflated exit prices.

Key Proposals

• Eligibility: Only PSUs with promoter and PSU group shareholding of 90% or more will qualify.
• Exemption from Norms: These companies may delist without meeting the 25% minimum public shareholding requirement.
• Fixed-Price Mechanism: Delisting to occur at a fixed price, at least 15% above the floor price, irrespective of trading frequency.
• No Two-Thirds Public Approval: The requirement for two-thirds of public shareholders to approve delisting may be removed.
• Exit Price Options: SEBI suggested three pricing methods, including current floor price calculations, independent valuation (based on book value, trading multiples, DCF), or other industry benchmarks.

Read More: SEBI Sees No Systemic Risk in Indian Stock Markets Despite Global Tariff Volatility!

Handling Unclaimed Funds

SEBI proposed that funds lying in escrow or bank guarantees for untendered shares be transferred to a designated stock exchange for seven years. After that, unclaimed amounts would move to the Investor Education and Protection Fund (IEPF).

Conclusion

The proposal seeks to simplify the delisting process for certain PSUs burdened by low float and high delisting costs. If approved, the carve-out could streamline government efforts to exit or restructure such entities.

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