SJVN Offer For Sale opens for retail investors today: Here's how you can apply for shares
What is an Offer for Sale?
An Offer For Sale is a process by which listed companies in India can sell shares to comply with the Securities and Exchange Board of India's (SEBI's) minimum public shareholding norms, which mandate that promoter holdings in companies should not exceed 75 percent.
The OFS mechanism was introduced in 2012 for private as well as state-run companies.
The government uses the OFS route to pare stake in their entities to achieve their disinvestment targets.
How is an OFS different from an IPO?
An Offer For Sale is a more cost-effective process for a company to sell their shares.
The IPO is a long, elaborate process that requires regulatory approvals, appointing lead managers, preparing RHP and more.
None of these requirements are applicable to an OFS.
Also, unlike an IPO, the OFS is only open for one trading day each - one for non-retail and the other for retail shareholders.
How does an OFS work?
It's a simple mechanism.
Promoters of the company have decided to sell some stake.
In SJVN's case, the government, which is the company's promoter, has decided to sell a stake in the company.
The information is then sent to the exchanges at least a day or two before the OFS opens.
The information is mandatory.
The company fixes a floor price, which is the minimum price at which the promoters will sell their shares.
For SJVN, the floor price of the OFS has been set at Rs 69.6, which is a 15 percent discount on Wednesday's (September 20) closing price.
A floor price is usually lower than the company's current market price.
How are OFS allocations made?
A minimum 25 percent of the shares on offer will be reserved for mutual funds and insurance companies, subject to the allocation methodology.
No single bidder other than mutual funds and insurance companies will be allocated more than 25 percent of the OFS size.
A minimum of 10 percent of the shares offered are reserved for retail investors.
How to apply for an OFS?
For a retail investor, it is mandatory to have a demat account in case one wishes to apply for shares in the OFS.
The retail investor has to bid for shares above the floor price.
Once all the bids are received, the company will decide on the cut-off price for the OFS.
The cut-off price is generally on par or higher than the floor price in case of a healthy subscription to the offer.
In case the retail investor's bid is below the cut-off price, their bid will be rejected and allocation will not be made to them.
Only those who bid higher than the cut-off price will be allocated shares.
For example, if SJVN sets its cut-off price at Rs 72, only those investors whose bids are higher than Rs 72 will be allotted shares.
Who gets the OFS proceeds?
Whether an IPO or a non-IPO OFS, the company does not receive any proceeds from the OFS.
In both instances, the selling shareholders get the funds for parting with their stake.
Even in SJVN's case, the company will not receive any proceeds from the OFS.
Those will go to the government, which will help boost its disinvestment target for the current financial year.
Can you place multiple bids in the OFS?
Yes, you can.
However, the total bid amount, regardless of the number of bids you place, should be available in your demat account to get the allocation.
In case that does not happen, the bid is rejected.
The final allotment is declared only at the end of the day.
There are chances that you may not receive all the shares you have bid for in case of oversubscription.
For those who get a partial allocation, the rest of the amount is refunded back into the demat account in T+2 days.
The mechanism is the same even for those who do not get the allocation.
What are the timings to place bids in an OFS?
One can place bids in an Offer For Sale only between 9:15 AM and 3 PM.
Although the market is open until 3:30 PM, the bids can only be placed until 30 minutes before closing.OFS orders cannot be modified after 3 PM.
Other points to remember
In an Offer For Sale, an investor applying can only apply through a limit order and not a market order.In case a bid is placed through a market order, that would be rejected.
A market order is often executed at that very instance at whatever price the market is charging.
However, a limit order will not trigger until the market price meets the investors' price.
This is also essential because OFS allocations are only made at the end of the session and not instantly.
