Buyback hopes cheer up investors of ailing PSUs

The government is planning to buy back shares of loss-making public sector companies and delist them, a move that may come as a relief to several retail investors who have been stuck with such investments.

At least half a dozen PSUs including HMT and State Trading Corporation (STC) are likely to be delisted as they have been unable to comply with minimum public shareholding (MPS) norms, said a top government official. Market regulator Securities and Exchange Board of India has asked all companies to comply with the public shareholding norms by October 2020.

“We don’t want to seek any further extension from Sebi. In most of the companies, we are comfortable since there is strong investor appetite,” said the official cited above. “However, we want to wind up the loss-making entities from public markets since it is difficult to find investors for divestment.” The Department of Investment and Public Asset Management (Dipam) will prepare the roadmap to delist these companies Several investors especially in the retail category have been stuck with loss-making PSUs, which have been battered in recent years. For instance, shares of HMT have fallen from their peak of Rs 104 in 2008 to Rs 20, currently. While the government owns 94 per cent stake in the company, there are over 18,000 retail investors who have exposure to the stock.

Similarly, investors saw bulk of their wealth erode in Metals and Minerals Trading Corporation (MMTC) whose shares have fallen from a peak of Rs 1,1,75 in 2010 to Rs 27. While government owns 90 per cent of stake in MMTC, there are over a lakh retail investors who hold the state-owned entity’s shares.


As per the Sebi rules, 25 per cent of the equity of a listed company should be held by non-promoter public investors. These rules were introduced by Sebi 2010 for private companies.

However, in 2014, the markets regulator amended the law to extend the minimum public shareholding norms to state-owned entities. Initially, the government was given time until August 2017 to bring down its stake in the listed PSUs below 75 per cent. But with the government unable to meet the deadline, Sebi has extended the timeline to October 2020.

According to official data, there are 89 PSUs listed on the stock exchanges. Of these 37 companies had not complied with the public shareholding norms as on December 31, 2018.

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The government is also planning to entrust additional responsibilities on Dipam apart from overseeing the central government’s divestment process. According to the official cited above, the department will be actively involved in asset management of all the PSUs and would also look into the sale of various government assets.

“There are several government assets that come up for sale from time to time,” he said.

Effectively, Dipam would emerge as a one-stop shop for sale of government's assets.