In an effort to facilitate strategic disinvestment, Finance Ministry has said a listed public sector undertaking will continue to be exempt from Minimum Public Shareholding (MPS) norm for a ‘specified period’, even after change of control. Norms say a listed company is required to maintain minimum public shareholding of 25 per cent.

The Ministry has notified changes in Securities Contracts (Regulation) Rules, 1957 or SCRA dated January 2. According to the amendments, the Central Government may exempt a PSU from various provisions of rule 19A in public interest. These provisions prescribe achieving and maintaining public shareholding for a listed company. As on March 31, 2022, the number of listed CPSEs is 62.

Push for divestment

Explaining the amendment, Sunil Gidwani, Partner, Nangia Andersen LLP, said that in the recent past, government and the markets regulator SEBI has relaxed rules from time to time to make the process of transfer of control easy for the government companies as well as the new acquirer. Certain rules required amended in the SCRA rules and hence this notification from the department of economic affairs was needed. “The amendment exempts Government Companies from the rules which will make the process of transfer of control to acquirer much easier and faster,” he said.

According to Sawant Singh, Co-founding Partner of Phoenix Legal, the amendment introduces an explanation, which clarifies that despite a change in control, the exemption would continue to apply. “This seems to be aimed at facilitating and smoothening the process of disinvestment by the government and allowing the benefits of the exemptions to carry on post disinvestment,” he said.

Sudhir Bassi, Executive Director, Khaitan & Co, said this amendment will facilitate strategic divestment by Government. The amended rule added an explanation that the exemption granted under this Rule to a PSU will continue to be available even after change of control of PSU.  “Hence, even after strategic divestment, the erstwhile PSU will have the benefit of exemptions granted under the amended rule including any exemption granted for compliance of MPS,” he said.