Market regulator SEBI recently came out with a comprehensive framework for offer-for-sale (OFS) mechanism. The new framework says that the OFS mechanism should also be available to companies with market capitalisation of ₹1,000 crore. Promoters of eligible companies would be permitted to sell shares within a period of two weeks from the OFS. The size of the offer has been reduced to a minimum of ₹25 crore. However, size of offer can be less than ₹25 crore by promoter(s) or promoter group entities so as to achieve minimum public shareholding in a single tranche.

Earlier, the use of the OFS route was limited to promoters who held more than 10 per cent stake.

To make it easier for retail investors to participate in the OFS, the market regulator has made it mandatory for sellers to provide an option to place their bids at the cut-off price, besides placing price bids.

Non-promoters can offload

The OFS mechanism was first introduced to Indian markets in February 2012 to help promoters of listed companies dilute stakes through an exchange platform — BSE and NSE. Initially, only promoters of top 100 listed companies based on market cap were allowed to sell through OFS. 

The OFS was primarily launched for promoters to meet the minimum public shareholding norm of 25 per cent with a focus on heavily government-owned public sector undertakings. The market regulator has been tweaking OFS framework consistently to meet market needs.

The latest move will deepen the OFS market, as it will help large non-promoter shareholders offload huge quantities at a better price. Currently, the option for them is through block deal window, which is a negotiated deal between private parties where a seller cannot offer a huge discount to the prevailing market price, posing a big challenge to sellers. Besides, reducing the cooling-off period to two weeks and giving a free hand to retail investors in the bidding process are thoughtful decisions.

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