Sebi allows non-promoter shareholders to sell shares via offer for sale
3 min read . Updated: 10 Jan 2023, 07:09 PM IST
Premium- Sebi has modified certain provisions of the existing offer for sale (OFS) through stock exchanges.
Capital market regulator Sebi has modified certain provisions of the existing offer for sale (OFS) through stock exchanges. Under the fresh guidelines, Sebi has now allowed non-promoter shareholders to sell their equity shares in a company through OFS. However, OFS is available to companies with a market capitalization of ₹1,000 crore and above.
Notably, the facility of OFS shares will be available on BSE, NSE, and the Metropolitan Stock Exchange of India (MSEI).
Sebi has said that all promoters or promoter group entities of such companies that are eligible for trading and are required to increase public shareholding to meet the minimum public shareholding requirements of the regulator.
Under the modified guidelines, Sebi said, OFS mechanism shall also be available to companies with market capitalization of ₹1,000 crore and above, with the threshold of market capitalization computed as the average daily market capitalization for six months’ period prior to the month in which the OFS opens.
"Any promoter or promoter group entity or non-promoter shareholder of such companies may offer shares through this mechanism," it said.
"The first benefit that will accrue to the large non-promoter shareholders who will be able to sell larger blocks of shares at a better price," Jimeet Modi, Founder & CEO, SAMCO Group said.
All investors who are registered with the brokers of stock exchanges other than promoters are eligible to participate under the OFS to buy shares.
In the case of non-promoter shareholders offering shares through the OFS mechanism, Sebi said, "promoters or promoter group entities of such companies may participate in the OFS to purchase shares."
Also, Sebi directed that promoters of eligible companies are permitted to sell shares within a period of two weeks from the OFS transaction to the employees of such companies. This would be considered part of the said OFS transaction.
The cooling-off period under the OFS mechanism are --- around 2 weeks for most liquid shares; around 4 weeks for liquid shares; and 12 weeks for illiquid shares.
"Notwithstanding the cooling off period... the promoter(s)or promoter group entities of companies whose shares are either liquid or illiquidcan offer their shares only through OFSor Qualified Institutional Placement (QIP) with a gap of 2 weeks between successive offers," Sebi's guidelines added.
In case the shares are undersubscribed in the OFS either liquid or illiquid shares and if the original OFS is made for compliance with Minimum Public Shareholding (MPS) norms, then promoter or promoter group entities are allowed to offer the unsubscribed portion of the OFS in the open market with a gap of 2 weeks from the closure of the OFS.
The size of the offer for sale will be a minimum of ₹25 crore. However, the size of the offer can be less than ₹25 crore by promoter or promoter group entities to achieve minimum public shareholding in a single tranche.
On the development, SAMCO CEO said, "Sebi has come out with a new comprehensive framework for OFS through Stock Exchange (SE) mechanism. The fundamental change is that non-promoter shareholders who want to sell stake valuing more than ₹25 crore can also use the OFS window of the SEs, which was so far available only to the Promoters."
He also explained that this Sebi decision is expected to have two major implications largely; So far what use to happen is that large institutional but non-promoter shareholders who were holding say 5-7-8% of the equity could not avail the facility of this OFS mechanism. As the OFS facility was not available to these non-promoter-institutional shareholders, they had to rush to accelerated Block deals via Brokers, where they had to absorb deep discounts in selling prices.
Under the new guidelines, the seller is required to announce the intention of the OFS latest by 5 pm on T-1 days which can be extended till 6 pm in certain cases. Also, the floor price should be announced by this time period on 'T-1' day to the stock exchange.
Furthermore, Jimeet expects the move to help retail investors in a big way. He added, "So far, what used to happen, when institutional investors were selling through negotiated blocks via brokers, retail investors had no ways to participate and buy such stocks even though it was available at a discount. As these deals with discounts were executed through block window, it was not available to retail investors in the earlier setup, but now the field has been leveled and if retail investors wish to participate in such deals, they will not miss the Bus of a discounted price."
Sebi directed sellers to offer a discount to retail investors.
