The Securities and Exchange Board of India (SEBI) has recently issued a consultation paper seeking public comments on a significant proposal: creating a separate regulatory carve-out for voluntary delisting of Public Sector Undertakings (PSUs) under the SEBI (Delisting of Equity Shares) Regulations, 2021. This move is particularly relevant in cases where the promoter or promoter group already holds 90% or more of the total issued shares of the company.
Currently, under the SEBI Delisting Regulations, a delisting proposal is deemed successful only if the post-offer shareholding of the promoter or promoter group — combined with shares tendered by public shareholders — reaches or exceeds 90% of the total issued shares. This threshold is the same across all listed companies, including PSUs.
However, the need for a specific carve-out arises because PSUs often operate under unique constraints and serve public policy objectives that differ from private sector entities. Moreover, when the government — often the sole or major promoter in a PSU — already owns 90% or more, the practicalities and rationale of following the same delisting route as private companies become questionable.
Pricing Complexities in PSU Delisting
One of the core elements of the delisting framework is the pricing mechanism. Regulation 19A of the SEBI Delisting Regulations outlines how the floor price for delisting is determined. It mandates using the highest value among several parameters including:
- Volume-weighted average price paid for acquisitions in the past 52 weeks.
- The highest price paid in the past 26 weeks.
- Adjusted book value, determined by an independent valuer (though this is not applicable to PSUs).
- Volume-weighted average market price over the past 60 trading days.
- A fair value determined by an independent registered valuer using multiple valuation methodologies.
Given the exclusion of adjusted book value in PSU delistings and the complexity in aligning valuation with both market dynamics and government interests, a standard approach often leads to inefficiencies or market distortions.
The Case for a Separate Framework
Introducing a separate carve-out for voluntary delisting of PSUs could streamline the regulatory process and provide greater clarity for all stakeholders. For companies where the promoter already holds 90% or more, additional compliance under the current regime might not materially benefit minority shareholders but could delay strategic decisions or raise unnecessary regulatory hurdles.
A tailored framework could:
- Ensure timely exit for public shareholders at a fair price.
- Align valuation mechanisms with the specific financial and operational characteristics of PSUs.
- Balance transparency and accountability with the government’s policy and disinvestment objectives.
Conclusion
SEBI’s initiative to consult the public on this proposal is a welcome step toward refining the delisting ecosystem in India. A well-crafted carve-out for PSUs can address regulatory gaps, improve investor confidence, and enhance the government’s ability to execute strategic divestments efficiently. Public comments will be vital in shaping a balanced and inclusive framework that respects both investor interests and public sector imperatives.
