Boards of PSEs can now take call on stake sale in units, joint ventures

The boards of government-owned companies will now be able to decide on a strategic divestment or minority stake sale in their subsidiaries, units and joint ventures.

The Department of Investment and Public Asset Management (DIPAM) on Thursday issued detailed guidelines for public sector enterprises (PSEs) on dealing with their downstream investments.

These companies will no longer require approval from the Alternate Mechanism for such transactions, if they have already taken clearance from the Cabinet or the Cabinet Committee on Economic Affairs, and their relevant ministries.

But if a company does not already have the Cabinet or CCEA approval, it will still have to approach the Alternative Mechanism – a panel that will comprise the finance and road transport ministers and the minister of the PSE’s administrative department.

The guidelines are in line with the Cabinet’s decision in May, which sought to give greater autonomy to PSUs, by empowering their boards to undertake the process for disinvestment, closure of their subsidiaries, or stake sale in a joint venture.

“The actual transactions for strategic disinvestment and minority stake sale may be carried out under the supervision of the board of the holding or parent PSE as per the powers delegated to them,” the department said in the guidelines.

The move is expected to help streamline and hasten the process of exit of businesses by state-owned companies.

While giving them autonomy, the government has asked PSE boards to follow thorough due diligence on qualified bidders, including the security risk and political clearance of qualified bidders if that is necessary from a national security angle. The companies will also have to check if there is any pending litigation involving the bidders and whether investigative agencies have raised any red flags.

The department advised PSEs to take up road shows for gauging investor interest and set realistic eligibility criteria for bidders.

It also asked the companies to identify non-core assets, find out its full value and monetise them separately.

It advised them to take adequate legal opinion and to maintain maximum transparency.

“All extant provisions of the Companies Act, 2013, Sebi Regulations and other rules and regulations may be strictly followed while carrying out the transactions,” it said, adding that the boards may form sub-committees to assist them in such transactions.

PSEs will have to undertake a valuation exercise by an independent professional to determine the benchmark price for the stakes. They will also need to maintain documentation of the decision-making process.

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