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निवेश और लोक परिसंपत्ति प्रबंधन विभाग, वित्त मंत्रालय, भारत सरकार

Department of Investment and Public Asset Management, Ministry of Finance, Government of India
Methods of Disinvestment of CPSEs

Modes of Disinvestment of CPSEs

Disinvestment Policy comprises two components :
  1. Strategic Disinvestment and
  2. Minority Stake Sale
Strategic Disinvestment implies entire or substantial sale of Government shareholding of a CPSE along with transfer of management control.
Minority Stake Sale: Minority stake sale in certain CPSEs are carried out without transfer of management control through various SEBI-approved methods like Initial Public Offer (IPO), Offer for Sale (OFS) and Buyback of shares etc.
Initial Public/ Further Public Offer (IPO/FPO)
  1. Initial Public Offer (IPO): When an unlisted company makes either a fresh issue of shares or convertible securities or offers its existing shares or convertible securities for sale or both for the first time to the public, it is called an IPO. This paves way for listing and trading of the issuer's shares or convertible securities on the Stock Exchanges.
  2. Further Public Offer (FPO): When an already listed company makes either a fresh issue of shares or convertible securities to the public or an offer for sale to the public, it is called FPO.
  3. Offer For Sale (OFS) is a simpler method of sale of shares through the exchange platform for listed companies. The mechanism was first introduced by SEBI in 2012, to make it easier for promoters of publicly-traded companies to cut their holdings and comply with the minimum public shareholding (MPS) norms. The method was largely adopted by listed companies, both state-run and private, to adhere to the SEBI norms of minimum public shareholding. Government has often used this route to divest its shareholding in CPSEs to achieve MPS and further dilution beyond MPS. However, Government is competent to extend time for achieving MPS for Public Sector under Rule 19 A of SCRR, 1957. Salient features of OFS are as under:
    1. Simple to execute
    2. Market-driven
    3. Govt. continues to retain management control
    4. Cost-effective
    5. Time efficient (completed in 2 trading days)
    6. Transparent allocation based on price-parity basis.
  4. Buyback of Shares: Buyback is the repurchase by a company of its shares from the existing shareholders that reduces the number of its shares in the open market. Companies buy back their shares for a number of reasons:
    1. To increase the value of shares held by promoters.
    2. To eliminate any threats by minority shareholders who may be looking for a controlling stake.
    3. For CPSEs, buyback is a tool for Govt. of India to disinvest the equity held by GoI in CPSEs and to make proper utilization of idle cash left with CPSEs. As per DIPAM guidelines dated 27.05.2016 the criteria for identifying potential buyback cases (subject, of course, to specific circumstances of each case) are as under:
    1. CPSE with net worth of Rs. 2,000 crore and cash and bank balance of Rs. 1,000 crore should consider for buyback.
    2. Other CPSEs may also go for buyback, based on the merits of each case. It's the CPSE Board which has to initiate for the Buyback and DIPAM has no role in decision for Buyback on behalf of the CPSE. GoI may or may not participate in buyback offer of the CPSE Board. If GoI, being the majority shareholders of the CPSE, intends to participate in the buyback, then DIPAM seeks Alternative Mechanism (AM) approval on HLC recommendations for subscribing to the buyback offer.
  5. Exchange Traded Funds: An ETF is a basket of stocks that reflects the composition of an Index, like Nifty-50 or BSE Sensex. Govt. introduced ETF as a method of disinvestment of CPSEs in 2014 by launching CPSE-ETF comprising of 10 CPSEs (with 67% weight in favour of energy sectors). Later another ETF, i.e. Bharat-22 was launched in 2017 comprising of 16 CPSEs, 3 PSBs and 3 private sector companies (where SUUTI had stake).