Sebi turns focus to PSUs on minimum holding norms

After cracking its whip on 105 private sector companies that failed to meet minimum public holding norms, market regulator Securities and Exchange Board of India (Sebi) has turned its focus to about a dozen PSUs that need to comply with these regulations in next 60 days with sale of shares worth about Rs 3,600 crore.

At the same time, the market regulator is also considering further actions against the non-compliant private sector companies, in addition to the orders passed against them last week.

Such actions might include monetary penalties and initiation of adjudication proceedings and a final call on this would be taken by the end of this month after receipt of responses from the companies against whom an interim order was passed on June 4.

At the same time, Sebi has begun the process of sending reminders to about a dozen listed PSUs that are yet to attain a minimum public shareholding of 10 per cent by August 8, a senior official said.

In these reminders, the companies are being asked to initiate steps to achieve this requirement through sale of shares by the promoter, which is the government or state-owned entities in this case, and inform the market regulator about such measures.

Besides, Sebi is also informing these companies about the actions that might be taken against them for non-compliance to this requirement by August 8.

Just like the private sector entities, the PSUs are also unlikely to get any respite in terms of the deadline, a Sebi official said, adding that the government has already assured it about the compliance within the prescribed timeframe.

The PSUs that need to lower their promoter holdings to 90 per cent or below to meet the guidelines include Andrew Yule & Company, Fertilizers and Chemicals Travancore Ltd, Haryana Financial Corp Ltd, Hindustan Copper, HMT, India Tourism Development Corp, ITI Ltd, MMTC, National Fertilizers ltd, Neyvelli Lignite Corp, Scooters India and State Trading Corp.

The government would need to sell shares worth an estimated Rs 3,600 crore at the current valuations to meet the minimum public holding norms in these companies.

Among these, the shortfall to the minimum 10 per cent public holding is more than 9 per cent at companies like MMTC and Haryana Financial Corp, while it is over 8 per cent in cases of HMT and Fertilizers and Chemicals Travancore.

However, companies like STC, ITI, ITDC, Neyveli Lignite, Andrew Yule and Hindustan Copper would need to increase their public holdings by 1-5 per cent.

The requirement would be relatively higher at little more than five per cent for Scooters India and at over 7 per cent in case of National Fertilizers.

At least two PSUs - State Bank of Mysore and Rashtriya Chemicals and Fertilizers, had promoter holdings of more than 90 per cent, but have managed to increase their public shareholding to above the threshold limits of 10 per cent.

Besides, one PSU entity, Hindustan Photo Films Manufacturing Corp is currently suspended from the stock exchanges and its position could not be ascertained with regard to the minimum public holding norms as it has not submitted its shareholding pattern for a long time.

In the run-up to the deadline for private sector firms, which were required to achieve a minimum 25 per cent public holding by June 3, Sebi had sent as many as 191 reminders to non-compliant companies.

In those reminders also, which began in November 2012 and continued till April this year, the companies were asked to initiate steps to meet the requirement or be ready for penal actions in the event of non-compliance within stipulated time.

A day after the expiry of the deadline, Sebi on June 4 barred the promoters and directors of 105 non-compliant firms from dealings in shares and from holding any new position on boards of listed entities.

Besides, Sebi also ordered freezing the voting rights and corporate benefits of promoters of those companies, in proportion of their non-compliance to the minimum public holding norms that require at least one-fourth of the share capital to be held by the non-promoter public shareholders.

The 191 reminders sent to these companies were in addition to the general circulars and reminders issued by Sebi and the stock exchanges from time to time.

The other possible actions that Sebi might take against these companies include moving their shares to trade-to-trade segment, excluding them from futures and options trade, monetary penalties under adjudication proceedings, initiation of criminal case by way of prosecution and other actions, as may be deemed appropriate at a later stage.

While taking into account the further actions against such companies, Sebi would take into account the delay in meeting the requirements even beyond the deadline. Also, the companies that could not meet the norms within the stipulated time period despite attempts made by them might face less strict actions, sources said.

Sebi has said it had provided the non-compliant companies with various routes to meet the requirements, including through issuance of public shares by the companies and promoters selling shares through one-day offer for sale (OFS) and Institutional Placement Programme (IPP) routes.

Besides, Sebi had also allowed the companies to meet the norms through rights issues, bonus issues, and any other method to be approved on case-to-case basis.

Sebi is of the view that it is the promoters and directors who are mainly responsible for the non-compliance with the minimum public shareholding requirements within specified timelines.

The regulator feels that the availability of a minimum number of shares with the public ensures a reasonable depth in markets and prices of such stocks are not susceptible to manipulation and action against promoters of non-compliant companies was necessary to ensure a level playing field, while also safeguarding the interests of public shareholders.