The Securities and Exchange Board of India (SEBI) by circular no. CIR/MRD/DP/ 05/2012 dated February 1, 2012 and CIR/MRD/DP/ 18 /2012 dated 18th July 2012, has permitted the Stock Exchanges to provide a separate window, i.e. apart from the existing trading system for the normal market segment, to facilitate Promoters of listed companies to dilute/offload their holding in listed companies in a transparent manner with wider participation. Further, SEBI vide its circular no. CIR/MRD/DP/04/2013 dated January 25, 2013, CIR/MRD/DP/ 24 /2014 dated 8th August 2014, SEBI/HO/MRD/DOPI/CIR/P/2018/159 dated December 28, 2018 and SEBI/HO/MRD/MRD-PoD-3/P/CIR/2023/10 dated January 10, 2023 and SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/6 dated 23rd January, 2024 has expanded the framework of Offer for Sale (OFS) of shares/units through stock exchange mechanism as follows:
1. Definitions
- “Floor Price” is the minimum price at which the seller intends to sell the shares/units.
- “Illiquid Shares” or “Illiquid Units” are securities not forming part of “Most Liquid Shares” or “Most Liquid Units” and “Liquid Shares” or “Liquid Units”.
- “Indicative Price” is the volume weighted average price of all the valid bids.
- “Liquid Shares” or “Liquid Units” are listed securities forming part of Group I securities as per SEBI circular No.MRD/DoP/SE/Cir-07/2005 dated February 23, 2005 and having mean impact cost of greater than 0.05 percent and less than or equal to 0.10 percent for a trade of Rupees One Lakh.
- “Most Liquid Shares” or “Most Liquid Units” are listed securities forming part of Group I securities as per SEBI Circular No.MRD/DoP/SE/Cir-07/2005 dated February 23, 2005 and having mean impact cost of up to 0.05 percent for a trade of Rupees One Lakh.
- “Multiple Clearing Prices” are the prices at which the shares/units are allocated to the successful bidders in a price priority methodology.
- “Shares” are the listed equity shares of the company.
- "Single Clearing Price” is the price at which the shares/units are allocated to the successful bidders in a proportionate basis methodology.
- “Size of the Offer” is the number of shares/units offered * floor price.
- “T day” is first day of OFS.
- “Units” are the listed units of Real Estate Investment Trusts (REITs) or Infrastructure Investment Trusts (InvITs).
2. Eligibility
- Exchanges
The facility of offer for sale of shares/units shall be available on BSE Ltd (Bombay Stock Exchange), National Stock Exchange (NSE) and Metropolitan Stock Exchange of India (MSEI)
- Sellers
- All promoter(s) / promoter group entities of such companies that are eligible for trading and are required to increase public shareholding to meet the minimum public shareholding requirements in terms Rule 19 (2) and 19 A of Securities Contracts (Regulation) Rules, 1957 (SCRR), read with regulation 38 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
- All promoters/promoter group entities/ sponsor(s) or sponsor group entities, and other unitholders of companies / REITs and InvITs with
market capitalization of Rs.1000 crores and above with the threshold of market capitalization computed as the average daily market capitalization for six months period prior to the month in which the OFS opens
- In case a non-promoter shareholder / other unitholder offers shares / units through the OFS mechanism, promoters/ promoter group entities / sponsor(s) or sponsor group entities of such companies / REITs and InvITs may participate in the OFS to purchase shares/units subject to compliance with applicable provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
- Buyers
- All investors registered with the brokers of the aforementioned stock exchanges other than the promoter(s)/ promoter group entities/ sponsor(s) or sponsor group entities shall be eligible to buy shares/units under OFS.
- In case a non-promoter shareholder/ other unitholder offers shares/units through the OFS mechanism, promoters/ promoter group entities / sponsor(s) or sponsor group entities of such companies / REITs and InvITs may participate in the OFS to purchase shares/units subject to compliance with applicable provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
- Cooling Off Period
- The cooling off period for transaction (i.e. purchase or sale prior to and after the offer) in the shares /units of the company/ REITs and InvITs for the promoter(s) or promoter group entities and non-promoter shareholders / sponsor(s) or sponsor group entities and other unitholders for offering the shares/units through OFS mechanism shall be based on the liquidity of the shares/units on exchanges and are as under:
- Notwithstanding the cooling off period mentioned above, the promoter(s) or promoter group entities/ sponsor(s) or sponsor group entities of companies/ REITs and InvITs whose shares/units are either liquid or illiquid can offer their shares/units only through OFS or Qualified Institutional Placement (QIP) with a gap of 2 weeks between successive offers.
- In case of under subscription of OFS of a company whose shares are either liquid or illiquid and if the original OFS is made for compliance with Minimum Public Shareholding (MPS) norms, the promoter(s) or promoter group entities are allowed to offer the unsubscribed portion of the OFS only for the purpose of MPS compliance in the open market with a gap of 2 weeks from the closure of OFS, subject to compliance with all other applicable conditions.
3. Size of Offer for sale of shares
The size of the offer shall be a minimum of Rs. 25 crores. However, size of offer can be less than Rs. 25 crores promoter(s)/ promoter group entities so as to achieve minimum public shareholding in a single tranche.
4. Advertisement and offer expenses
- Advertisements about the offer for sale of shares/units through stock exchange(s), if any, shall be made after the announcement/ notice of the offer for sale of shares/units to the stock exchanges in accordance with para 5 below and its contents shall be restricted to the contents of the notice as given to the stock exchange under Para 5
- All expenses relating to offer for sale of shares/units through stock exchange(s) shall be borne by the seller(s)
5. Operational Requirements
- Appointment of Broker
The Seller(s) will appoint broker(s) for this purpose. The Seller's broker(s) may also undertake transactions on behalf of eligible buyers
- Announcement/ Notice of the Offer for sale of shares
Seller shall announce intention of sale of shares latest by 5 pm on T-1 days (T day being the day of the OFS) to the stock exchange, along with the following information:
- Name of the Seller(s) i.e. promoter(s) or promoter group entities and non-promoter shareholders / sponsor(s) or sponsor group entities and other unitholders and the name of the company/ REITs and InvITs whose shares/units are proposed to be sold
- Name of the stock exchange(s) where the orders shall be placed. In case orders are to be placed on more than one stock exchanges, one of them shall be declared as the Designated Stock Exchange ("DSE") Date and time of the opening and closing of the offer
- Floor Price to be disclosed in the notice
- Allocation methodology i.e. either on a price priority (multiple clearing prices) basis or on a proportionate basis (at a single clearing price)
- Number of shares/units being offered for sale
- Green Shoe Option: The maximum number of shares/units that the seller may choose to sell over and above the offer made at point above.
- The name of the broker(s) on behalf of the seller(s)
- Conditions, if any, for withdrawal or cancellation of the offer
- Floor price
- Seller shall disclose the floor price latest by 5 pm (or latest by 6 pm, if extension is granted by stock exchange in terms of paragraph 5.2 above) on T-1 day to the stock exchange. Stock exchanges shall ensure that the same is informed to the market immediately
- The promoters may at their discretion offer these shares to employees at the price discovered in the said OFS transaction or at a discount to the price discovered in the said OFS transaction
- Promoters shall make necessary disclosures in the OFS notice to the exchange including number of shares offered to employees and discount offered, if any
- Discount by Seller
- Seller may offer discount to retail investors. The details of discount and percentage of reservation for retail investors shall be disclosed upfront in the notice of OFS to the exchange.
- Timelines
- The duration of the offer for sale shall be as per the trading hours of the secondary market and will be open for two trading days. On T day only for Non-Retail Investors will be permitted to place their bids and on T+1 day for Retail Investors and for Non- Retail who choose to carry forward their bids to T+1 day
- Orders shall be placed during trading hours
- Order Placement
- A separate window for the purpose of sale of shares/units through OFS shall be created
- The following orders shall be valid in the OFS window:
- Every bid/order for an Institutional Investor should be backed by 100% (Upfront) Cash Margin of the bid amount or 0% Margin (No Margin)
- Every bid/order for a Retail Investor (RI) and Non-Institutional Investor (NII) should be backed by 100% (Full) Cash Margin
- Minimum 10% of the offer size shall be reserved for Retail Investors. For this purpose, Retail Investor shall mean an individual investor who places bids for shares/units of total value of not more than Rs. 2 lakhs aggregated across the exchanges. If the cumulative bid value across exchanges exceeds Rs.2 lakhs in the retail category, such bids shall be rejected
- Individual retail investors shall have the option to bid in the Retail Category (RI) and the general category i.e. Non-Institutional Investor (NII). However, if the cumulative bid value of such investors exceeds Rs.2 lakhs, the bids in the retail category shall become ineligible
- Retail investors may enter a price bid or opt for bidding at cut-off price
- Every order/ bid placed for 100% (Upfront) Cash Margin shall be validated against the cash deposit in OFS segment.
- Cumulative bid quantity shall be made available online to the market throughout the trading session at specific intervals in respect of orders with 100% upfront margin and separately in respect of orders placed without any upfront margin. Indicative price shall be disclosed to market throughout the trading session. The indicative price shall be calculated based on all valid bids/orders. There shall be no indicative price for retail portion of OFS
- If the security has a price band in the normal segment, the same shall not apply for the orders placed in the offer for sale. Stock specific tick size as per the extant practice in normal trading session shall be made applicable for this window
- In case of shares/units under offer for sale, the trading in the normal market shall also continue. However, in case of market closure due to the incidence of breach of ‘Market wide index-based circuit filter’, the offer for sale shall also be halted
- Only limit orders/ bids shall be permitted
- Multiple orders from a single buyer shall be permitted
- Orders/ bids below floor price shall not be accepted
- Margin for retail bids placed at cut-off price shall be at the cut-off price determined based on the bids received on T Day and for price bids at the value of the bid.
- Bidding by retail investors on T+1 Day shall be based on the cut-off price determined in the non-retail category. In case of under subscription in the non-retail category, the retail investors shall be allowed to place their bids at floor price on T+1 day.
- Seller may offer discount to retail investors on the cut off price determined based on the bids received on T+1 day
6. Risk Management
- Clearing Corporation shall collect 100% margin in cash from non-institutional investors. In case of institutional investors who place orders/bids with 100% of margin upfront, custodian confirmation shall be within trading hours. In case of institutional investors who place orders without upfront margin, custodian confirmation shall be as per the existing rules for secondary market transactions. The funds collected shall neither be utilized against any other obligation of the trading member nor co-mingled with other segments
- In respect of bids in the retail category, clearing corporation shall collect margin to the extent of 100% of order value in cash or cash equivalents. Pay-in and pay-out for retail bids shall take place as per normal secondary market transactions.
- In case of order/bid modification or cancellation, such funds shall be released/ collected on a real time basis by clearing corporation
- The seller(s) shall deposit the entire quantity of shares/units offered for sale including the additional shares/units disclosed at Para 5 as pay-in with the clearing corporation/clearing house of DSE prior to the commencement of the offer. No other margin shall be charged on the seller(s)
7. Allocation
- Minimum of 25% of the shares/units offered shall be reserved for mutual funds and insurance companies, subject to allocation methodology. Any unsubscribed portion thereof shall be available to the other bidders
- The orders shall be cumulated by the DSE immediately on close of the offer. Based on the methodology for allocation to be followed as disclosed in the notice, the DSE shall draw up the allocation. i.e. either on a price priority (multiple prices) basis or on a proportionate basis at a single clearing price
- No allocation will be made in case of order/ bid is below floor price
- No single bidder other than mutual funds and insurance companies shall be allocated more than 25% of the size of offer for sale
- The allocation details shall be shared by the DSE with the other exchange after the allocation is crystallized
- Minimum 10% of the offer size shall be reserved for retail investors. For this purpose, retail investor shall mean an individual investor who places bids for shares of total value of not more than INR 2 lakhs aggregated across the exchanges. If the cumulative bid value across exchanges exceeds INR 2 lakhs in the retail category, such bids shall be rejected
- Any unsubscribed portion of non-retail category after allotment shall be eligible for allocation in the retail category and vice versa
8. Settlement Process
- Settlement
The allocation and the obligations resulting thereof shall be intimated to the brokers on T day & T+1 day for the bids received on respective day
Settlement shall take place on trade for trade basis. For non-institutional orders/bids and for institutional orders with 100% margin, settlement shall take place on T+1 day. In case of orders/bids of institutional investors with no margin, settlement shall be as per the existing rules for secondary market
Funds collected from the bidders who have not been allocated shares/units shall be released after the download of the obligation
On the day prior to settlement, to the extent of obligation determined, the designated clearing corporation of the seller broker(s) under the framework of interoperability among clearing corporations shall transfer such number of shares/units to the other interoperable clearing corporations. The other interoperable clearing corporation(s) shall transfer funds consideration to designated clearing corporation on settlement day. Excess shares/units, if any, shall be returned to seller broker(s). The direct credit of shares/units shall be given to the demat account of the successful bidder provided such manner of credit is indicated by the broker or bidder
- Handling of default in pay-in
- In case of default in pay-in by any investor, 10% of the order value shall be charged as penalty from the investor and collected from the broker. This amount shall be credited to the Investor Protection Fund of the stock exchange
- The price at which allotments have been made based on the allocation on T day & T+1 day shall not be revised as a result of any default in pay-in
- Seller(s) shall have the option to cancel in full or conclude the offer.
- Allotment details after settlement shall also be disseminated by the exchange.
- Allocation details after settlement shall be consolidated by the DSE and excess shares/units, if any, shall be returned by the respective Clearing Corporation/ Clearing house to the seller(s) broker(s)
- Settlement Guarantee Fund shall not be available for OFS through stock exchange mechanism
9. Issuance of Contract Notes
The brokers shall be required to issue contracts note to its clients based on the allotment price and quantity in terms of conditions specified by the exchange.
10. Withdrawal of offer
The offer for sale may be withdrawn prior to its proposed opening. In such a case there will be a cooling off period of 10 trading days from the date of withdrawal before an offer is made once again. The stock exchange(s) shall suitably disseminate details of such withdrawal.
11. Cancellation of offer
Cancellation of offer shall not be permitted during the bidding period. If the seller fails to get sufficient demand from non-retail investors at or above the floor price on T day, then the seller may choose to cancel the offer, post bidding, in full (both retail and non-retail) on T day and not proceed with offer to retail investors on T+1 day.
12. Offer for Sale (OFS) of Shares to Employees
- The procedure for OFS to employees through the Stock Exchange Mechanism is an additional option to the existing procedure of OFS to employees outside the exchange mechanism.
- OFS to Employees shall be on T+1 day along with the Retail Category under a new category called as "Employee".
- While bidding, the employee shall select "Employee" category for employee bids. However, the employees can also bid for other categories, as per the applicable limits.
- For Employee OFS, a certain number of shares shall be reserved for the employees. The same shall be mentioned in the OFS notice to the stock exchanges by the promoter(s).
- Bidding shall be allowed during trading hours on T+1 day only.
- Floor price of the Retail Category shall be disclosed to the participants under the “Employee” category.
- Employees shall place bids only at cut-off price of T+1 day. The allotment price shall be based on the Cut-off of the retail category, subject to discount, if any.
- The maximum bid amount shall be INR 5,00,000.
- Each employee is eligible for allotment of equity shares up to INR 2,00,000.
- Provided that in the event of under-subscription in the employee portion, the unsubscribed portion may be allotted to such employees whose bid amount is more than INR 2,00,000, on a proportionate basis, for a value in excess of INR 2,00,000, subject to the total allotment to an employee not exceeding INR 5,00,000.
- The employees shall pay upfront the margin to the extent of 100% of the order value in cash or cash equivalents.
- Bids for the “Employee" category shall not be displayed on the stock exchange website.
- The bid book of “Employee” Category shall be segregated from Retail Category book for allotment.
- Allotment under the “Employee” category shall be based on the PAN details of employees shared by the company on T-1 day. The PAN mis-matched bids shall be rejected.
- The promoters shall transfer the total shares of OFS on T-1 day including shares reserved for "Employee” category, to the Designated Clearing Corporation.