Government-led oil major Oil and Natural Gas Corporation (ONGC) on Thursday, sold 427.77 million shares through an offer for sale method. To find out all about this new method of disinvestment, read on.
What is an offer for sale through auction?
It is the latest method introduced by the market regulator to enable large companies raise money through stock exchanges.
Who can raise money through this route?
Only the top 100 companies in terms of market capitalisation are allowed to raise money through this route.
How long will the auction be open?
The auction is open during the trading hours of the market and has to be completed within a day.
How is the allocation price determined?
The seller should inform the floor price. Floor price is the minimum price at which the seller intends to sell the shares. The seller has the option to announce the floor price to the market or submit the floor price to the stock exchange in a sealed envelope. Where the floor price is submitted to the stock exchange in a sealed envelope, it shall be declared to the market after closure of the offer. ONGC has announced a floor price of Rs 290 per share
How is the allocation done?
Allocation can be done either on price priority basis or on proportionate basis. ONGC auction was conducted on price-priority basis, wherein the highest bidder gets maximum allotment. In the price-priority method, the exchanges will show multiple clearing prices and the number of shares allotted at each of these clearing prices.
Who can bid?
All kinds of shareholders are eligible to bid for an offer for sale through auction.
Is there any cap on allotment?
No single bidder can be allotted more than 25 per cent of the shares on offer. However, insurance companies and mutual funds are exempted from this rule. This has probably helped the ONGC offer sail through with investments from LIC.
What are the advantages of this route?
Large institutional investors who want to buy a significant chunk of a stock can use this route to buy shares without disturbing the share prices. Companies also can raise money quickly without going through the lengthy procedure required in the case of a public offer.
What happens if the issue is undersubscribed?
The seller has the option to retain the subscribed portion or cancel the sale.