New OFS rules to attract investors

Mumbai: The relaxation of norms governing the offer for sale (OFS) through the stock exchange mechanism is expected to increase the participation of retail investors in the capital market.
On Thursday, the Securities and Exchange Board of India (Sebi) decided to give a 10 per cent reservation for retail investors in an offer for sale. Additionally, the regulator also allowed companies to offer special discount to retail investors in OFS.

With even state owned entities now required to comply with the minimum 25 per cent public share holding norms, experts said most of these companies would use the OFS route to bring down the government’s stake.   

“Most of the PSU’s would be using the OFS mechanism to bring down their high promoter holding as it is the most convenient mode available in the market. The retail participation in the previous OFS process was negligible. The 10 per cent reservation and special discount to retail investors would now encourage them to participate actively in the share sale process,” said Jagannadham Thunuguntla, head of equity, SMC Global Securities.

Deven Choksey, managing director, K.R.Choksey Securities said, “The Sebi move is definitely a positive one. But merely providing discount would not attract retail participation. The entire OFS process should be made more attractive. The offer period should be extended for a longer period so that the share prices don’t come under pressure. This will be beneficial for both the company as well as investors”. In the next three years, listed state owned entities will have to offload shares worth '60,000 crore to meet the minimum public shareho-lding norms prescribed by Sebi.