SEBI May Relax Delisting Norms for PSUs with 90% Government Holding

Big decision likely on June 18 to ease compliance burden on state-run firms

India’s capital market regulator SEBI is gearing up for a crucial decision that could impact nearly a dozen Public Sector Undertakings (PSUs) where the government holds 90% or more stake. The SEBI board meeting, scheduled for June 18, is expected to finalize a separate voluntary delisting framework exclusively for such state-run companies.

Why the Move Now?

In recent years, SEBI has struggled to bring PSUs in line with the Minimum Public Shareholding (MPS) norm, which mandates that listed companies must reduce promoter holding to 75% within three years of listing. Many PSUs have not complied with this requirement—even after multiple deadline extensions.

More than 20 government-owned companies remain non-compliant, with some being listed for over a decade—signaling a lack of intent to dilute government stake to the mandated level.

To address this persistent issue, SEBI released a discussion paper last month, inviting public feedback on a more lenient delisting mechanism for PSUs with promoter holding of 90% or above. The last date for feedback was May 26, and the board will now review those comments before making a final call.

What’s Being Proposed?

The discussion paper proposes a significant departure from existing rules. Key suggestions include:

• Doing away with the requirement for two-thirds public shareholder approval for delisting.

• Allowing delisting at a fixed price—a minimum 15% premium over the floor price, irrespective of the stock’s trading frequency.

• The move targets PSUs with high promoter holding and low liquidity, not actively traded firms like public sector banks.

This proposal could ease the exit process for illiquid PSUs, reducing regulatory hurdles and lowering delisting costs.

Challenges with the Current Framework

Under the current delisting rules, a delisting attempt is considered successful only if promoter shareholding reaches 90%. Also, the floor price is calculated using multiple pricing metrics such as the 60-day average price and the highest price in the last 26 weeks. These norms often inflate the delisting price, especially when PSUs have weak financials or low book values but still trade at high prices in the market.

PSUs That Could Be Affected

As per data from Prime Database, 10 PSUs currently have over 90% government holding. These include:

• KIOCL

• IDBI Bank

• Indian Overseas Bank

• HMT

• Punjab & Sind Bank

• State Trading Corporation

• UCO Bank

• ITI

• Fertilisers & Chemicals Travancore

While some market participants expect these changes to lead to delisting of less active or illiquid companies, experts believe large, actively traded banks are unlikely to pursue this route.

What’s Next?

The upcoming SEBI board meeting on June 18 will be critical. If approved, this lenient delisting framework could pave the way for the government to streamline PSU holdings without going through the complex process of reducing promoter stake.

This decision could mark a new chapter for PSU governance and stock market compliance, offering more flexibility to the government and possibly unlocking value in underperforming PSUs.

So far, SEBI has not commented officially on the matter. However, all eyes will be on June 18, as the market awaits this potentially transformative decision.