The Securities and Exchange Board of India (SEBI) has proposed to change the existing norms for offer-for-sale (OFS) process, which is used by promoters to sell shares through the stock exchange either to meet minimum public holding regulation or for business needs.
The securities market regulator has floated a discussion paper to change certain rules in the current OFS mechanism.
The proposed changes are based on the suggestions made by market participants and are aimed at enhancing retail investor participation besides sorting out some procedural issues.
The key changes proposed by SEBI include imposing trading price band on a stock of the company ahead of an OFS, reducing the mandatory OFS notice period to one day prior to the issue from two days at present, trading halt or suspension of a listed stock on the date of its OFS, restricting OFS issues to Saturdays and making it mandatory for companies to allow retail investors to make a price bid or bid at the cut-off price.
The development comes after a range of concerns raised by industry participants including the issue of volatility in the prices of a listed stock on the OFS day, which makes it difficult to arrive at an appropriate floor price for OFS.
SEBI has also proposed that retail investors in OFS should be given the option to bid at the cut-off price. Currently companies may give such an option to the retail investors.
“Recent experience with OFS has shown that some retail investors bid at high prices on the assumption that they would get allotment at cut-off price. Therefore, it is suggested to make it mandatory for sellers to provide option to retail investors to place price bid or place bid at cut off price for better retail participation,” the SEBI discussion paper said.
OFS is considered an easy and quick route for sale of shares by promoters for an already-listed company. Since its introduction in 2012, the OFS route has emerged as the preferred route for stake sales and to date 117 companies have used this window.
The government has also used this route for sale of its minority stakes in case of 13 PSUs so far as part of its disinvestment programme.
SEBI has invited public comments on the proposed changes by April 18.
(Edited by Joby Puthuparampil Johnson)