Modes of Disinvestment of CPSEs
Disinvestment Policy comprises two
components :
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. These methods play important role in strengthening the capital market through:
Initial Public/ Further Public Offer (IPO/FPO)
- Strategic Disinvestment and
- Minority Stake Sale
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. These methods play important role in strengthening the capital market through:
- Increasing the float of well performing CPSE's
- Providing opportunity to retail investors to participate in an extended range of stocks and
- Increasing liquidity and depth of the capital market
Initial Public/ Further Public Offer (IPO/FPO)
- 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.
- 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.
- 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:
- Simple to execute
- Market-driven
- Govt. continues to retain management control
- Cost-effective
- Time efficient (completed in 2 trading days)
- Transparent allocation based on price-parity basis.
- 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:
- To increase the value of shares held by promoters.
- To eliminate any threats by minority shareholders who may be looking for a controlling stake.
- 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.
- Cash and Bank balance;
- Capital Expenditure and business expansion as committed with reference to the CAPEX incurred in the last 3 years;
- Net-worth [Free reserves and paid-up capital, including other reserves (if any)];
- Long term borrowing and further capacity to borrow on the basis of its Net worth;
- Any other financial commitments in the near future;
- Business/other receivables and contingent liabilities, if any;
- Market price/book value of share.
- 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).