What is Offer for Sale?

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Overview:

Recently, the government's 5.36% stake sale in Rail Vikas Nigam Ltd (RVNL) under offer-for-sale (OFS) got an enthusiastic response from institutional investors.

About Offer for Sale: 

 

  • It is a simpler method of share sale through the exchange platform for listed companies.
  • The mechanism was first introduced by India’s securities market regulator Sebi in 2012.
  • Aim: To make it easier for promoters of publicly-traded companies to cut their holdings and comply with the minimum public shareholding norms by June 2013.
  • The method was largely adopted by listed companies, both state-run and private, to adhere to the Sebi order.
  • Later, the government started using this route to divest its shareholding in public sector enterprises.
  •  In an OFS, promoters of a company will dilute their stake by selling their shares to retail investors, companies, Foreign Institutional Investors (FIIs) and Qualified Institutional Buyers (QIBs) on an exchange platform.
  • Features of Offer for sale
    • Unlike a follow-on public offering (FPO), where companies can raise funds by issuing fresh shares or promoters can sell their existing stakes, or both, the OFS mechanism is used only when existing shares are put on the block.
    • Only promoters or shareholders holding more than 10 per cent of the share capital in a company can come up with such an issue.
    • The mechanism is available to 200 top companies in terms of market capitalisation.
    • In an OFS, a minimum of 25 per cent of the shares offered, are reserved for mutual funds (MFs) and insurance companies.
    • At any point, no single bidder other than these two institutional categories is allocated more than 25 per cent of the size of the offering.
    • A minimum of 10 per cent of the offer size is reserved for retail investors.
    • A seller can offer a discount to retail investors either on the bid price or on the final allotment price.
    • It is mandatory for the company to inform the stock exchanges two banking days prior to the OFS about its intention.

 


Q) What is Foreign Institutional Investors?

Foreign Institutional Investors (FIIs), also known as Foreign Portfolio Investors (FPIs), are entities that invest in financial assets, such as stocks, bonds, and other securities, of a country different from their own. These investors are typically large institutions, including mutual funds, pension funds, hedge funds, insurance companies, and sovereign wealth funds, among others.

 

Source: Rail Vikas Nigam Ltd. offer-for-sale over-subscribed, institutional buyers place bids worth ₹2,000 crore