All you wanted to know about the OFS route

Sebi has revamped the the Offer For Sale route; has expanded the eligibility of companies who can make use of it

The Securities and Exchange Board of India has revamped the the Offer For Sale (OFS) route. It has expanded the eligibility of companies who can make use of it, as well as moved to allow greater participation by retail investors. A primer:

What is an OFS?

OFS or Offer For Sale was originally mooted as a window provided by stock exchanges to promoters of listed entities to help them dilute holdings in a transparent way. This exchange-based bidding platform came into being in July, 2012 following a circular from the stock market regulator. It is faster and more cost-effective than other available routes for the promoter.

What has changed now?

Not only promoters but also non-promoters which have 10% holding in the company are now eligible to take this route to off load their stake. Further, in order to encourage retail participation in OFS (which has been missing) a minimum 10% of the issue size has to be reserved for retail investors.

Who is a retail customer?

Investors who are bidding with amount less than Rs Two lakh will be eligible to be called retail.

What happens if this reserved 10% remains under-utilized?

In that case, the unutilized portion may be offered to other investors.

Will there be any discount for retail investors in OFS?

According to Sebi, seller of shares may offer a discount to retail investors in accordance with the framework specified from time to time. The degree of discount is likely to be left to the company to decide upon.

Which non-promoters can now sell shares through OFS?

Only those non-promoter shareholders having more than 10% or such percentage as specified by SEBI from time to time shall be eligible to use OFS route. Financial institutions and private equity firms will get an exit route through this route.

Which companies are eligible to use OFS route?

Shareholders of India's top 200 companies by market capitalisation are eligible to use the route sale shares through OFS mechanism. Earlier, it was only for top 100 companies by market capitalisation.