Securities market regulator SEBI has expanded the window of offer-for-sale (OFS) mechanism—currently limited to promoters of top 100 listed companies to dilute holding—to non-promoters, added the option of providing discount to retail shareholders and increased the pool of firms which can use the route.
This opens up a new avenue for large institutional shareholders, including private equity firms to sell shares of a portfolio company through the stock exchange. Currently PE firms sell shares of listed portfolio firms in tranches.
SEBI had previously said it is mulling such a move.
The market regulator said on Friday that the OFS mechanism shall be available to top 200 companies by market capitalisation in any of the last four completed quarters. This practically doubles the number of firms whose shareholders can use the route to sell shares.
It added any non-promoter shareholder of eligible companies holding at least 10 per cent of share capital may also offer shares through the OFS mechanism. In such cases promoters/promoter group entities of such companies may participate in the OFS to purchase shares subject to compliance with other provisions.
To boost participation of retail investors in such issues, which are currently largely lapped up by institutional investors, it has mandated a minimum 10 per cent of the offer size to be reserved for retail investors. For this purpose, it has stated that retail investor shall mean an individual investor who places bids for shares of total value of not more than Rs 2 lakh.
Individual retail investors shall have the option to bid in the retail category and the general category. However, if the cumulative bid value of such investors exceeds Rs 2 lakh, the bids in the retail category shall become ineligible.
On the pricing of the issue, SEBI said the cut off price—i.e., the lowest price at which the entire offer gets sold—shall be determined based on all valid bids. The
cut-off price shall be determined separately for bids received in the retail category and the non-retail category. Upon determining the cut-off price, the offer size reserved for retail investors shall be allocated to eligible bids of retail investors. Any unutilised portion shall be offered to non-retail category of investors. In case of excess demand in retail category at the cut-off price, allocation shall be on proportionate basis.
The regulator said that the indicative price for retail and non-retail portion shall be displayed separately.
SEBI said the seller may offer discount to retail investors. The details of discount and percentage of reservation for retail investors shall be disclosed upfront in the notice of OFS to the exchange.
Such a discount would be based on whether it is multiple clearing price OFS or single clearing price OFS. In the former, retail investors may be allocated shares at a discount to the cut-off price determined in the retail category, irrespective of the bid price entered by them or at a discount to the bid price entered by them.
In the case of single clearing price OFS, retail investors shall be allocated shares at a discount to the cut off price determined in the retail category.
In case of both of the above methodologies, the discounted price which shall be the final allocation price to the retail investors may be below the floor price.
The OFS route was introduced in early 2012 as a swift mode for share sale by promoters to meet the minimum shareholding norms of 25 per cent for a listed company.
(Edited by Joby Puthuparampil Johnson)