SEBI allows direct sale of govt stakes

A government almost certain to miss the disinvestment target for this fiscal got a flicker of hope on Tuesday after the capital market regulator allowed two new methods of stake dilution by promoters.

Companies looking to meet minimum public shareholding norms can go for a direct placement with institutions or sell through a separate window on the stock exchange, the Securities and Exchange Board of India said. The regulator approved both the options and tweaked buyback norms in a board meeting held on Tuesday.

The second method — sale through a separate window — can also be used otherwise by the top 100 companies by market capitalisation, it said.

The government is a stakeholder in 26 out of the 100 eligible companies, which include ONGC, NMDC, GAIL and Bhel.

In its last Budget, the government had set a target of raising Rs40,000 crore from sale of stake in various public sector companies. However, it has managed to raise only Rs1,165 crore, or 2.9%, of the targeted amount so far.

The changes could help the government meet its fiscal deficit target of 4.6%, said Arun Kejriwal, director at Kejriwal Research and Investment Services.

“Though the changes would help bail out the government and meet its fiscal deficit, the good part is that SEBI has not opened Pandora’s Box.

They have made appropriate changes and restricted the same to the top 100 companies which are of top quality and with high accountability,” he said.

The new method would provide some respite to promoters who until now could only reduce their shareholding through primary offerings or through open market block sales, with no provision for qualified institutional placement or preferential allotment, said Dara Kalyaniwala, vice-president, investment banking, Prabhudas Lilladher.

“They have now opened these two routes and would save time and expenses related to coming out with
primary offers for many companies. Also, they would be able to find better pricing from institutional investors,” he said.

The institutional placement programme can only be used for complying with minimum public shareholding norms whereby all listed companies must have at least 25% public shareholding, though public sector companies can have 10%.

The placement would allow promoters to make an offer only to institutional investors, for up to 10% stake in the company or a lesser percentage, as required to meet shareholding norms. It can involve fresh issue or dilution by selling existing stake.

No investor can be allotted more than 25% of the offer, and there should be at least 10 allottees in every issue, SEBI said.

A minimum 25% reservation for mutual funds and insurance companies is mandatory.

The issuer would need to simultaneously file a red herring prospectus with the stock market regulator, the Registrar of Companies and the stock exchanges. The company would need to announce an indicative floor price or price band at least one day prior to the opening of the offer.

The method of allotting the shares must be disclosed in advance and cannot be changed subsequently.

The regulator has also made available an offer for sale through a separate window on stock exchanges, wherein promoters can offload a minimum of 1% stake subject to a minimum of Rs25 crore. The window would be open during normal trading hours.

Along with use for meeting public shareholding norms, this method can be used by eligible promoters of top 100 companies based on market capitalisation.

Promoter companies would not be allowed to bid for the same and every bid would have to be backed by 100% margin cash up front.

The capital market regulator has also tweaked buyback norms, asking companies to announce a ratio for buybacks, similar to rights issues, allowing investors to know how many shares they would be entitled to surrender.

These entitlements would be as per the shareholding on a record date determined for the same.

“Shareholders are free to tender over and above their entitlement. Acceptance of shares shall first be based on entitlement of each shareholder and if any shares are still left to be bought back, acceptance of additional shares tendered over and above the entitlement shall be in proportion to the excess shares tendered by the shareholder,” said the SEBI statement.

Companies would have to make a public announcement for a buyback within two days of the date of it being resolved by shareholders or the board.

The timeline for buybacks has also been reduced, though details were not made available.