Central Idea

The government’s stake sale in Rail Vikas Nigam Ltd (RVNL) through an offer-for-sale (OFS) received an enthusiastic response from institutional investors.

About Offer for Sale (OFS)

OFS is a method of share sale introduced by India’s securities market regulator SEBI in 2012.
The primary aim was to facilitate promoters of listed companies to reduce their holdings and comply with the minimum public shareholding norms within the stipulated time frame.
This mechanism gained popularity among both state-run and private listed companies as a means to adhere to SEBI’s order.
Subsequently, the government also embraced OFS to divest its shareholding in public sector enterprises.

Stake Dilution: In an OFS, the promoters of a company reduce their stake by selling existing shares to retail investors, companies, Foreign Institutional Investors (FIIs), and Qualified Institutional Buyers (QIBs) through an exchange platform.
Restriction on Fresh Issuance: Unlike a follow-on public offering (FPO), where companies can raise funds through issuing fresh shares or promoters can sell their existing stakes (or both), OFS is used exclusively for the sale of existing shares.
Eligibility Criteria: Only promoters or shareholders holding more than 10% of the share capital in a company can conduct an OFS.
Limited to Top 200 Companies: The OFS mechanism is available to the top 200 companies based on market capitalization.
Reserved Quota for Institutions: A minimum of 25% of the shares offered in an OFS is reserved for mutual funds (MFs) and insurance companies. Additionally, no single bidder, other than MFs and insurance companies, can be allocated more than 25% of the offering size.
Retail Investor Participation: A minimum of 10% of the offer size is reserved for retail investors, encouraging their participation in the share sale.
Discount Provision: Sellers have the option to offer a discount to retail investors either on the bid price or on the final allotment price.
Timely Notification: The company must inform the stock exchanges about its intention to conduct an OFS at least two banking days prior to the event.