SEBI's New Delisting Framework: Opportunities for Public Sector Undertakings

SEBI’s New Delisting Framework: A Much-Needed Exit Plan for Forgotten PSUs

After years of deadlock and endless paperwork, the SEBI board finally stepped in this June with a pragmatic, focused fix: a new delisting route tailored for a specific set of Public Sector Undertakings (PSUs) where the government owns more than 90%.

The move doesn’t try to change the entire rulebook—it simply acknowledges a reality that investors and officials have quietly known for years: some PSUs are stuck in the system, with barely any public float and no real market activity. This new route offers them—finally—a way out.

So, Who Does This Apply To?

Don’t expect a flood of delistings overnight. This is a surgical change aimed at just five companies for now:

• KIOCL
• HMT
• ITI
• State Trading Corporation of India (STC)
• Fertilisers & Chemicals Travancore (FACT)

It’s also explicitly off-limits to banks, NBFCs, and insurance firms.

All five qualifying PSUs have something in common: very high government ownership and extremely low trading volumes, which have made full compliance with SEBI’s traditional delisting process virtually impossible.

What Was the Problem with the Old System?

Let’s not sugarcoat it—SEBI’s earlier delisting rules, especially the reverse book-building mechanism, simply don’t work for PSUs with thin public shareholding.

Why?

• With barely any trading, market prices are often disconnected from fundamentals
• Getting two-thirds of public shareholders to approve delisting is a logistical nightmare
• And in many cases, investor value is eroded, not enhanced, during drawn-out processes

The government, in theory, could initiate a delisting. In practice, it almost never worked. These new rules are designed to fix that.

Here’s What SEBI Changed

1. The Fixed Price Route Is Back (with a twist)

Forget the game of guess-the-floor-price. Now, PSUs under this framework can offer to buy out public shareholders at a fixed price—no reverse book-building needed.

But it’s not a free-for-all. The offer price must be at least 15% above the regulatory floor price, which is calculated using the highest of:

• The 52-week volume-weighted average market price
• The highest acquisition price in the last 26 weeks, if applicable
• A fair valuation by two independent SEBI-registered valuers

This hybrid method ensures price integrity without dragging the process into an endless price discovery loop.

2. No More Two-Thirds Approval Requirement

This is a big one. SEBI has waived the requirement for approval from two-thirds of public shareholders—a major stumbling block in earlier delisting attempts where public float was barely 5–10%.

With such thin participation, the old rule made clean exits impossible. Removing it simplifies things while still protecting investor rights through enhanced pricing safeguards.

3. Investor Protection: Still Front and Centre

Just because the process is simpler doesn’t mean it’s open season on minority shareholders. SEBI’s made sure that:

• All offer details and pricing methods are disclosed transparently
• Unclaimed payments to non-tendering shareholders—if any—are held in a special account
• If the company goes for voluntary strike-off within 13 months, the funds stay protected for 7 years and eventually go to the Investor Education and Protection Fund (IEPF) or SEBI’s Investor Protection and Education Fund (IPEF)

Who Wins Under This New Setup?

The Government

This directly supports the Centre’s divestment strategy. It allows the government to either reduce its holding in PSUs that barely meet listing norms or exit completely without waiting years.

Retail Shareholders

Instead of getting trapped in illiquid, mostly dormant stocks, small investors now get a clear exit path—with pricing that reflects fair value rather than market vagaries.

The Broader Market

Cleaner exits, better rule clarity, and reduced friction in PSU stocks could help restore confidence in the PSU universe, long written off by many market participants.

Let’s Look at the Five PSUs in Focus

Company	Govt Holding	Retail Shareholders	Performance Snapshot
KIOCL	99.03%	~37,000	Strong long-term gains; often undervalued due to illiquidity
HMT	93.69%	~26,240	Stock up 358% in the last 5 years
ITI	90.02%	>2 lakh	Large retail base; significant gains since 2019
STC	90%	~25,500	Doubled in value over 3 years
FACT	90%	~83,610	Massive 2,200% return in just 5 years

All five have public shareholding below the minimum 10%, and all have long faced valuation and liquidity distortions under the old rules.

What Comes Next? Is This a One-Off or a New Model?

SEBI’s made it clear: this is an experiment—a surgical fix for a specific problem. But if it works—if retail investors get fair exits, if the government can streamline PSU holdings—then don’t be surprised if similar models are rolled out for other sectors or companies.

Lowering the 90% threshold? Expanding to non-PSU companies stuck in compliance limbo? It’s all possible, but SEBI’s watching the outcomes of this first batch before making the next move.

Bottom Line: A Rare, Targeted Reform That Actually Makes Sense

SEBI’s new delisting framework for 90%+ government-owned PSUs isn’t sweeping reform, but it solves a real, persistent problem. For once, a rule change that’s both technically sound and practically executable.