India eases PSU delisting rules to facilitate government exit and protect minority investors

India’s market regulator has introduced a streamlined framework for the voluntary delisting of certain state-controlled companies, potentially simplifying government exit while safeguarding minority shareholders through fixed-price procedures and increased pricing transparency.

India’s market regulator has drawn up a special route for the voluntary delisting of certain state-controlled companies, a move that could make it easier for the government to take firms off the stock market while giving minority shareholders a clearer exit.

According to the Securities and Exchange Board of India’s frequently asked questions on the new framework, the rules apply only to public sector undertakings outside banking, non-banking finance and insurance, and only where the government or other PSUs together hold at least 90% of the shares. Business Standard reported that Sebi has removed the earlier requirement for a two-thirds public shareholder vote in these cases, while the regulator’s own guidance says the aim is to streamline the process and preserve investor safeguards.

The biggest change for investors is pricing. Under the new system, eligible PSUs can use a fixed-price delisting method, with the floor price set at the highest of three measures: the weighted average price paid by the acquirer over the previous 52 weeks, the highest price paid over the previous 26 weeks, or a valuation based on reports from two independent registered valuers. LiveMint reported that Sebi’s proposal also envisages a minimum 15% premium above that floor price, a design meant to replace the more cumbersome reverse book-building process used in standard delistings.

For retail shareholders, that matters because government-backed stocks can trade at levels that do not always reflect a company’s underlying worth. Sebi said the older formula could produce an inflated benchmark for frequently traded PSUs and make delisting expensive for the government. The new framework is intended to balance a cleaner exit for the company with a defined price protection for small investors, even if it does not guarantee a profit on their original purchase price.

Shareholders who do not sell immediately are not left without recourse. Sebi’s FAQs say that if shares remain unsold after the one-year period following delisting and the company is struck off within 30 days after that period ends, the money due to those shareholders will be transferred to the designated stock exchange, which will hold it for seven years. After that, unclaimed sums move to the Investor Education and Protection Fund or Sebi’s Investor Protection and Education Fund, depending on the law that applies. Investors can still approach the exchange later to claim what they are owed, with the exchange seeking reimbursement from the relevant fund.