Respect regulations

Source: Business Standard

Relevance: Changes to minimum public shareholding norms and consequent impact

Synopsis: The government’s move to exempt any public sector listed company from complying with the minimum public shareholding norm is undesirable and inappropriate.

Background

• Exempting select PSUs from minimum free float norm reverses govt stance

Issues with the latest move

• Blocked an option to raise resources: According to the latest data, the government has only managed to raise Rs 7,648.15 crore so far in the current fiscal year against the full-year target of Rs 1.75 trillion. Now, in a number of public sector banks and other firms, the government owns over 90%. Reducing stake in firms to comply with the regulation was, in fact, an opportunity for the government to raise resources, which would have helped increase expenditure.
• Govt had enough time to comply: Government reportedly argued that to comply with the regulation (maintain a public float of 25%), the government would have had to resort to distress selling, which it wanted to avoid. However, this is a flawed logic given that the government had enough time to comply with the public float norms.
• Policy U-turn: The decision to exempt PSUs from the regulation is a U-turn from the stated policy position of the government. In the July 2019 Budget speech, Finance Minister had noted that the government would take necessary steps to meet public shareholding norms in all listed PSUs.
  • She also said that SEBI had been asked to consider raising the minimum public shareholding threshold from 25% to 35%.
  • The total disregard of this commitment undermines the position of the securities market regulator and reflects poorly on governance of PSUs.
• This will further affect PSU valuations and create complications for the overall disinvestment programme of the government.

Terms to know:

• Securities and Exchange Board of India (SEBI)