SEBI clears path for non-promoter shareholders to opt for OFS route

(Representative image: Reuters)

The Securities and Exchange Board of India (SEBI), via a circular, has decided to alter the framework for Offer for Sale (OFS) framework through the stock exchange route. The revamp clears the way for non-promoter shareholders to opt for the OFS mechanism, while simultaneously chalking out a cooling-off period for promoters and non-promoters based on the liquidity of the shares on the exchange.

Back in September last year, SEBI had eased rules for OFS by non-promoter shareholders by eliminating the requirement of a minimum shareholding. Till then, non-promoter shareholders who held a 10 percent stake in the company were permitted to sell their shares via the OFS route.

OFS is a convenient and transparent way for publicly traded companies to offload their shares, in order to meet the minimum public shareholding requirement as mandated in the provisions of the Securities Contracts (Regulations) Rules and the SEBI LODR regulations.

The circular mandates that the OFS mechanism shall be available to companies with a market capitalisation of Rs 1,000 crore and above. The market capitalisation would be computed as the average daily market capitalisation for the six months prior to the month in which the OFS goes live.

The circular clears the path for non-promoter shareholders to offer shares through the OFS mechanism. Additionally, promoters and any promoter group entity can also offer shares through this mechanism.

The promoter or promoter group entities are free to participate in an OFS by a non-promoter shareholder, provided they comply with the provisions of SEBI regulations regarding the issue of capital and disclosure requirements, substantial acquisition of shares and takeover as well as regulation on listing obligation and disclosure requirements.

Further, promoters of eligible companies will be permitted to sell their shares to employees within a period of two weeks from the OFS transaction. The offer to employees will be regarded as part of the OFS.

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The regulator has mandated a cooling-off period for transactions, that is, purchase or sale prior to or after the OFS shall be based on the liquidity of the shares in the company.

For most liquid shares: +/- 2 weeks

For liquid shares: +/-4 weeks

For illiquid shares: +/-12 weeks

For companies, whose shares are in the liquid and illiquid categories, the promoter or promoters or promoter group entities can offer their shares only via OFS or QIP with a gap of two weeks between successive offers.

For companies, whose OFS is under-subscribed and who fall in the liquid or illiquid categories and where the OFS has been kicked off for the sole purpose of compliance with the Minimum Public Shareholding norms, the promoter or the promoter group entities can offer the unsubscribed portion of the OFS in the open market with a gap of 2 weeks from the closure of the OFS.

The minimum size of the OFS shall be Rs 25 crore. Size offers of OFS can be less than Rs 25 crore if the OFS is intended to achieve a minimum public shareholding in a single tranche.

The fresh framework will come into action from February 9.