PSUs get more teeth; can decide on closure, divestment

The Cabinet on Wednesday empowered boards of state-owned companies to decide on the closure and divestment of units/subsidiaries.

Presently, the Board of Directors of holding or parent public sector enterprises have been delegated certain powers to make equity investments to establish financial joint ventures and wholly-owned subsidiaries and undertake mergers/acquisitions, subject to certain ceilings of net worth.

However, the Boards do not have powers for divestment or closure of their subsidiaries or units or stake in JVs, except for some limited powers given to Maharatna PSEs for minority stake divestment in their subsidiaries.

Therefore, approval of the Cabinet was required for both strategic divestment and minority stake sale or closure of the subsidiaries or units or sale of their stakes in a JV, irrespective of the size of operations or capital deployed of such subsidiaries, etc.

"The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the proposal for empowering the Board of Directors of the Holding / Parent Public Sector Enterprises to recommend and undertake the process for divestment (both strategic divestment and minority stake sale) or closure of any of their subsidiaries/units/stake in JVs," an official statement said.

The alternative mechanism on divestment will accord 'in principle' approval for divestment (both strategic divestment and minority take sale) / closure of subsidiaries of Maharatna PSEs, which was delegated to them and review the process of divestment or closure by the parent or holding PSEs.

The process for undertaking the strategic divestment transactions/closures to be followed by the PSEs should be based on the principles of competitive bidding and consistent with the guiding principles to be laid down.

"For strategic divestment, such guiding principles will be laid down by DIPAM.  For closure, DPE shall issue guiding principles," the statement said.