Decoding the OFS route

Sebi has revamped the OFS route. It has expanded eligibility criteria for companies that can tap the route, as well as moved to allow greater participation by retail investors

The Securities and Exchange Board of India (Sebi) has revamped the offer-for-sale (OFS) route. It has expanded eligibility criteria for companies that can tap the route, as well as moved to allow greater participation by retail investors. Here's how:

What is 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 a promoter.

What has changed?

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

Who is a retail investor?

Investors who are bidding with amounts less than Rs 2 lakh will be eligible to be called retail investors.

What happens if this reserved 10 per cent remains under-utilised?

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

Will there be any discount for retail investors in OFS?

According to the regulator, the 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 per cent or such percentage as specified by the Sebi from time to time shall be eligible to use the route. Financial institutions and private equity firms will get an exit route through OFS.

Which companies fall under the OFS route?

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