The Securities and Exchange Board of India (Sebi) is planning a major fillip to the Offer For Sale (OFS) route, predominantly used by promoters to divest their stakes to comply with the minimum public shareholding (MPS) requirement.
According to sources, the market regulator will soon make large-scale changes to the OFS framework, such as allowing non-promoter shareholders to use the route and a quota for retail investors. Introduced in 2012, the OFS route is a fast-track share sale mechanism, where a shareholder can divest his shares on the stock exchange platform during market hours.
The route has proved widely popular with companies wanting to bring down their promoter holding to comply with the 25 per cent MPS requirement. Following the success, Sebi plans to extend this method to institutional shareholders with holding of more than five per cent.
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Brokers said the OFS route was more transparent and offered better price discovery over other share sale mechanisms such as block deals or even follow-on public offerings.
For instance, in 2012, Citigroup had sold nearly 10 per cent stake worth a little over $2 billion in HDFC through block transactions, leading to a sharp fall in the housing loan provider’s share price. Those in the sector say such large block transactions can take place through the OFS route instead.
Sources said changes to the OFS framework had been deliberated at Sebi’s secondary market advisory committee (SMAC) meetings and was likely to be taken up by the Sebi board soon. Lack of retail participation in share sales done through OFS was a major issue discussed at the SMAC meeting, a source said. “Sebi wants earmarking of shares for retail investors in OFS. Also, provisions to allow discount to retail investors, if the need arises,” said a source.
Confirming part of the development, U K Sinha, chairman, Sebi, said on Wednesday, “We are working on guidelines through which institutional investors which are not promoters but have a significant holding in a company might be able to access the OFS route.”
Sinha, speaking on the sidelines of a CII capital markets summit, said Sebi was also considering allowing more companies to tap the OFS route. At present, only the top 100 companies by market capitalisation are allowed to sell shares through this route. Other companies that can access the route are those wanting to pare promoter holding to comply with the MPS norms.
BSE had sent a representation to Sebi last month to allow companies to sell stake via OFS route.
“Private equity players, venture capital funds and other domestic investors will be able to reduce their stake and get a quick exit from a company,” said Prithvi Haldea, chairman, Prime Database.
Prime Database says India Inc has raised equity capital worth at least Rs 50,000 crore in the previous two financial years, a large portion of it via the OFS route.