OFFER FOR SALE (Syllabus: GS Paper 3 - Economy)

Context: The government has decided to divest 5.36 per cent stake in Rail Vikas Nigam Ltd (RVNL) via an offer for sale that is expected to fetch ? 1,329.90 crore.

• The proposed Offer for Sale (OFS) comprises a base offer size of up to 70,890,683 equity shares of RVNL, representing 3.40 per cent with an option to additionally sell 40,866,394 equity shares, representing 1.96 percent of the total issued and paid up equity share capital.

Offer for sale (OFS)

• About: Offer for sale (OFS) is a simpler method of share sale through the exchange platform for listed companies. 

• Origin: The mechanism was first introduced by India’s securities market regulator SEBI, in 2012, 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.

• Mechanism: In an OFS, promoters of a company dilute their stake by selling their shares on an exchange platform. 
• Anyone including retail investors, companies, Foreign Institutional Investors (FIIs) and Qualified Institutional Buyers (QIBs) can bid on these shares.
• Bidding: In an OFS, a buyer has to provide a bid in order to acquire the shares. 
• The company sets a ‘floor price.’ Buyers cannot bid at a price below the floor price. 
• Once the bids are placed, shares are allocated to the different buyers. 
• There is no minimum limit to participate in an OFS. 
• A buyer can bid for even a single share in the OFS process.
• Eligibility: As an individual investor, he can apply in the retail category of the OFS. 
• In this category, his total bid value should not exceed Rs 2 lakh rupees.  Otherwise, it becomes ineligible. 
• He also require a demat account and a trading account in order to participate in an OFS. 
• In case he is  an offline investor, he can still place his bids through an assigned dealer.