Sebi modifies norms for share sale through auction route

Market regulator Sebi today issued modified guidelines for Offer for Sale (OFS) mechanism or auction route, preferred by companies to offload shares in order to comply with minimum shareholding norms.

To make the OFS process more transparent, Sebi has said that indicative price of the offer should be disclosed throughout the trading session and the same should be calculated on the basis of "all valid bids/orders".

Further, institutional as well as non-institutional investors -- who pay 100% margin requirement upfront -- while bidding in an OFS issue would be allowed to modify or cancel their orders.

Currently, all investors are required to pay upfront margin and the bids cannot be modified later.

Only promoters of top 100 companies by market capitalisation, in any of the last four completed quarters, are eligible for selling shares through auction route.

"With the deadline of June 2013 to achieve minimum public shareholding  approaching, to encourage  promoters to offload their shares through OFS route and based on market feedback, it has been decided to modify  the OFS  framework to make it more economical, efficient and transparent," Sebi said in a circular.

The regulator said that OFS has been found to be useful by market participants and popular for offloading shares to achieve minimum public shareholding.

The decision to modify OFS norms were taken at Securities and Exchange Board of India's board meeting last week.

Cumulative bid quantity of shares would be available online to throughout the trading session at specific intervals.

"Orders with 100% of margin paid upfront by institutional investors and non-institutional investors. Such orders can be modified or cancelled at any time during the trading hours," the circular said.

In the case of bids made by institutional investors without paying upfront margin, orders cannot be modified or cancelled, "except for making upward revision in the price or quantity".

About 10% of the order value would be charged as penalty in case an investor fails to pay up.

"Settlement shall take place on trade for trade basis. For non-institutional orders/bids and for institutional orders with 100% margin, settlement  shall take  place on T+1 day," the circular said.

Companies such as ONGC and NMDC have tapped the auction route successfully during government disinvestment programme in recent times.