With private sector companies having complied with the 25% minimum float requirements—the deadline for them was June 3, 2013—the Securities and Exchange Board of India (Sebi) believes public sector enterprises should follow suit. Sebi chairman UK Sinha is right when he says the minimum public shareholding for listed companies should be 25% irrespective of whether they are owned by the government or are privately held; thus far, PSUs have been allowed to list just 10% of their outstanding shares making many of the stocks illiquid and price discovery inefficient. The Sebi chief said he was in discussions with the government on the matter. For its part, the BJP-led NDA government has been left a bunch of unpaid bills by its predecessor and selling shares in a few PSUs might be a good way to mop up non-tax revenues to help narrow the fiscal deficit. Indeed, given the current rally in the markets, with the Sensex at lifetime highs, it might be a good time to kick off some sales—Sebi has suggested PSUs be given three years to offload the equity shares. Since the start of 2014, PSU stocks have seen a sharp run up in their prices—while the Sensex has rallied 18%, the BSE PSU index has gained 47% with stocks such as BHEL moving up even more. On Friday, the ONGC stock hit a lifetime high on the back of news the government was planning to notify the price of gas at close to $8 per mmBtu, a move that will boost earnings for the explorer.
In the past, the state-owned insurer, LIC, was needed to bail out several of the share sales in PSUs; in 2013, stake sales in seven PSEs, among them SAIL and NTPC, are understood to have been supported by LIC. However, with foreign institutional investors seriously bullish on India in the belief that the BJP government will make PSUs more efficient, there is a good chance LIC’s services may not be needed. It should not be difficult for the government to pick up R10,000-15,000 crore immediately, an useful sum. While an Offer for Sale might result in institutional players dominating the subscription, a follow-on public offer may attract a large number of retail investors who are gradually re-entering the market as is clear from the jump in the cash turnover. That would result in a more broad-based shareholding, always desirable for any stock.