SEBI allows negotiated deals in PSU divestment

NetScribes/Janaki Krishnan

The Securities and Exchange Board of India (SEBI) has allowed negotiated deals to take place in the divestment of public sector enterprises. Such deals will, however, be allowed only on a case-to-case basis.

The decision, which is expected to give a fillip to the Centre's divestment programme, was announced in a circular issued by the regulatory authority earlier this week.

Market sources say the latest move will hasten the divestment process. The government can now divest its stake in PSUs to interested parties as a strategic sale without having to wait for the market to recover and ensure a good price. Part of the government's reluctance to go through with its divestment programme stems from the fear that it may not get the required price.

According to SEBI officials, past attempts at divestment faced problems as, given the lack of market demand for PSU shares, the government found it difficult to get a good pricing for these units.

Earlier, in what SEBI officials call a strictly one-off instance, the authority had allowed a negotiated deal in the case of Gas Authority of India (GAIL).

Under the previous regulations, negotiated deals were permitted only in companies whose scrips had reached their maximum FII (foreign institutional investor) investment limits. In all other cases, negotiated deals were not permitted and SEBI had directed that all deals "would have to be executed only on the screens of the exchanges in the price and order matching mechanisms of the exchanges".

A negotiated deal is defined as any transaction executed at a price not formed through the stock exchange price and order-matching mechanism. It means that these deals usually operate on a bilateral basis between the two parties involved in the buying and selling.

It may be mentioned here that negotiated deals must result in delivery and, in fact, all negotiated deals are to be reported to the relevant exchange and displayed on the screen. In effect, they must be reported to the stock exchange.

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