SEBI introduces OFS Framework 2.0: Permits Non-Promoters to Withdraw

SEBI introduces OFS Framework 2.0: Permits Non-Promoters to Withdraw

A revised framework for share sales through offer for sale (in short OFS) was introduced by the Securities and Exchange Board of India (in short SEBI) by its circular dated 10 January, 2023. The revised framework will facilitate this route for non-promoters. An OFS mechanism will also be available to companies whose market capitalization Rs 1,000 crore or more, according to the circular.

It is predicted that a separate window will be created for the sale of shares through OFS and that it will be aligned to secondary market timings under this new mechanism. OFSs are required to have a minimum size of Rs. Twenty-five crore.

The offering size can, however, be less than Rs twenty-five crore if the OFS is being launched to meet the regulator's minimum public shareholding norm. A minimum of twenty-five per cent of public shares must be held by listed companies according to SEBI regulations.

As a result of these relaxations, industry experts believe that OFS could become a preferred route over bulk deals due to greater pricing flexibility and transparency. Prior to the OFS opening, the seller is required to disclose the floor price by 5 pm.

Additionally, it would provide individual investors with a discount, the specifics of which would need to be disclosed up front to exchanges.

On the first day of the OFS (also called the T-day), only non-retail investors would be allowed to make offers; retail investors may only make bids on the second day. The bids collected on T-day will be used to calculate the cut-off price according to the current regulations.

"Exchanges will decide on the quantity of shares eligible to be considered as retail bids, based on the floor price declared by the seller," stated SEBI. If the seller fails to get sufficient demand from the non-retail segment at the floor price, it may choose to cancel the offer.

Mutual funds and Insurance firms would reserve a minimum of twenty-five per cent of the shares issued, while ten per cent of the shares will be reserved for individuals.

The cooling off time between two OFSes has also been shortened by the market regulator to two weeks. If an OFS is withdrawn, there will be a gap of ten trading days before another offer can be made.

The new framework shall be effective within the next thirty days.