Judgment reserved on offer for sale on stock exchanges

In 2010, the Securities Contract (Regulations) Rules, 1957, were amended to require all listed companies to achieve and maintain a minimum public shareholding of 25% by 5 June 2013. At 30 March 2012, approximately 110 companies in the private sector did not meet this requirement. These companies have two options: delisting of the company, or increasing the public stake through one of the four methods prescribed in clause 40A of the Listing Agreement.

The four methods are: follow-on public offer; offer for sale by the promoters through a prospectus; institutional placement programme; and offer for sale on the stock exchange (OFS). This article examines the OFS method.

OFS process

The OFS is a sale of shares held by the promoters through an auction process. The sale takes place on the floor of the Bombay Stock Exchange, the National Stock Exchange of India, or both, and is carried out through a separate window. To date, the promoters of two companies have used the OFS mechanism – the government of India (ONGC) and the Azim Premji Trust (Wipro).

Akila Agrawal is a partner and Mukul Sharma is an associate at Amarchand & Mangaldas & Suresh A Shroff & Co. The views expressed in this article are those of the authors and do not reflect the position of the firm.