Sebi may allow offer for sale window extension for retail investors for an extra day

MUMBAI: Retail investors may be given an additional day to bid for shares companies sell through the offer for sale (OFS) route. The Securities and Exchange Board of India ( Sebi) is considering a government proposal to allow the OFS window to remain open for retail investors for an extra day so that they can take cues from institutional investors' bids.

It is also reviewing the rule on cut-off price for bidding as currently there are two cut-off prices — one for institutions and the other for retail. Investment bankers said there are suggestions that there should be only one cut-off price based on bids from institutional investors.
Sebi data shows the participation of retail investors has been very small in shares offered through OFS. The maximum participation by small investors (for bids up to Rs 2 lakh) was seen in the MMTC offer at 5.81%. In the OFS of other public sector undertakings, retail participation was between 0.5% and 2.5%, despite issuers offering substantial discount to market price.

Last year in June, to encourage more retail participation, Sebi mandated issuers to reserve minimum 10% of the issue size for retail investors and to also offer a discount to them. Rules define retail investors as those placing bids for amounts less than Rs 2 lakh. "If the OFS window is extended for a day, brokers will get more time to reach out to customers and explain to them the pros and cons of the issue. It will also help small investors arrange the required funds," said Kamlesh Rao, CEO, Kotak Securities. "Retail investors will get an idea of the price at which they should bid as currently maximum bids come in the last half an hour."

Institutional investors have the option of applying with 100% upfront margin in cash or with an adhoc margin of certain lower percentage but more than the margin applicable in current secondary market transactions. Retail investors are required to pay the entire bid amount upfront. "Retail portion was not subscribed in many of the past OFSs as normally they take more time to respond," said Sudip Bandyopadhyay, managing director & CEO, Destimoney Securities. “If they get an extra day, their participation will increase if an OFS gets good response from institutional investors."

But, Sebi is concerned about tackling the pricing of an issue, said a person close to the development. It has provided for safeguards in the OFS mechanism keeping in mind the main market also functions simultaneously in the same stock. Sebi wants to ensure bids in the OFS don't manipulate the stock. “As far as pricing is concerned, it's a difficult decision for Sebi but an extra day would be meaningful for retail investors," said B Madhuprasad, chairman, Keynote Corporate Services.

Many Indian issuers have steered clear of the sluggish primary market in the past few years and also because of poor investor appetite. But, they were able to raise funds thanks to the opening of the OFS window for capital raising. The mechanism offered swift fund-raising (within a day). It has helped not just private firms, but also the government to raise money by selling shares in state-owned units.

Coal India's Rs 24,000 crore OFS is the highest value of shares offered by the government from the time this new window was allowed in 2012. As per Sebi data as on March 31, 2014, promoters of 105 listed companies have used the OFS mechanism to offload shares worth Rs 48,536.84 crore.