Can you have your cake and eat it too? You apparently can, if you’re the government. Lately, the Centre has brokered a series of deals in listed public sector companies where it has ceded its majority equity stake to a new entity, to meet disinvestment targets or free up budgetary resources. SEBI’s Takeover Code is quite clear that where a stake sale results in a change in the management or control of a listed entity, the acquirer must make an open offer to public shareholders of the target, to give them a fair exit. But the Centre has actively lobbied for its deals to be exempted from these requirements. In the case of ONGC-HPCL and the Port Trusts-Dredging Corporation deals, SEBI appears to have given in to the Centre’s requests. The LIC-IDBI Bank case is undecided.
Last year, ONGC was persuaded to buy out the Centre’s 51.1 per cent equity in HPCL for over ₹36,000 crore in a bid to bridge the hole in the disinvestment proceeds. Parleys are now on to offload the government’s 73.4 per cent stake in listed Dredging Corporation of India to three Port Trusts. Going by SEBI’s Takeover Code, these are clear cases of a change in management control for the listed company, with the equity stake changing hands well above the 25 per cent threshold. Therefore, it is unclear on what grounds the acquirers have been exempted from open offer requirements. The government’s argument is that as the sale is to ‘government’ entities, there’s no trigger for an open offer. But this argument is specious given that the Centre showcases the very same deals as successes of its public sector ‘disinvestment’ programme. Yes, SEBI is empowered to grant open offer exemptions in special cases to safeguard the interests of investors in securities markets. But in the above cases, interests of investors in the acquired firms were best served by insisting on open offers rather than waiving them. In the LIC-IDBI Bank case, such an exemption would stand on even thinner ground, as the whole objective of the deal is to anoint LIC as the new ‘promoter’ to infuse necessary capital into the ailing bank.
Such instances of securities market laws being bent at the whim of the powers-that-be, reflect poorly both on the Centre and the markets regulator. The government is proving to be a poor role model on corporate governance for the promoters of India Inc. It should also recognise that, in repeatedly handing public investors in listed PSUs a raw deal, it is shooting itself in the foot. Given the persisting budget constraints, the Centre will have to lean quite heavily on public market investors in the next few years, to fund ambitious capex plans of public sector entities and meet the capital needs of PSU banks. Meting out cavalier treatment to shareholders can put them off government-owned entities for good.