Government’s Disinvestment in SJVN Ltd. via Offer for Sale: A Retail Investor’s Guide

Recent government announcements have disclosed intentions to divest up to 4.92 percent of its ownership in SJVN Ltd., a state-owned hydroelectric power generator, through an Offer for Sale (OFS). This move aligns with SEBI’s regulations, which stipulate that promoter holdings in companies must not exceed 75 percent. In this blog post, we will explore the concept of an Offer for Sale and outline how retail investors can participate in this opportunity.

Understanding an Offer for Sale (OFS)

An Offer for Sale (OFS) is a method employed by listed companies in India to reduce their shareholdings and comply with SEBI’s regulatory requirements. It serves as a cost-effective alternative to the complex Initial Public Offering (IPO) process. Unlike an IPO, an OFS does not necessitate regulatory approvals or the engagement of lead managers. It provides a streamlined approach that benefits both the company and the government, particularly when the government aims to divest its holdings in state-owned enterprises.

The Mechanics of an OFS

The OFS process is straightforward. In this instance, the government, acting as SJVN’s promoter, has opted to sell a portion of its stake in the company. The company establishes a floor price, representing the minimum price at which the promoters are willing to divest their shares. Typically, this floor price is set below the company’s current market value to attract potential investors.

OFS Allocation Details

A minimum of 25 percent of the shares offered is reserved for mutual funds and insurance companies, with allocation determined by a specific methodology. Importantly, no individual bidder, except for mutual funds and insurance companies, can be allocated more than 25 percent of the total OFS size. Additionally, a minimum of 10 percent of the offered shares is earmarked for retail investors.

How to Participate in an OFS

To participate as a retail investor, it is imperative to possess a demat account. You must submit a bid for shares at a price higher than the floor price. Following the receipt of all bids, the company establishes the cut-off price for the OFS, typically set at or above the floor price if demand is strong. Only investors whose bids surpass the cut-off price will receive an allocation of shares.

Utilization of OFS Proceeds

It is important to note that, in both IPOs and non-IPO OFS, the company does not receive any proceeds from the sale. Instead, the funds are directed to the selling shareholders. In the case of SJVN, the government will receive these proceeds, contributing to its disinvestment objectives for the fiscal year.

Placing Multiple Bids and Timing

Retail investors are afforded the flexibility to submit multiple bids. However, it is essential to ensure that the total bid amount is available in your demat account. In instances of oversubscription, partial allocations may occur. Any unallocated funds are refunded to the demat account within two days.

OFS orders can only be placed between 9:15 AM and 3 PM, with the bidding period closing 30 minutes before the market’s standard closure time of 3:30 PM. Post 3 PM, no modifications to OFS orders are permitted.

Additional Considerations

  • Investors must employ limit orders, not market orders, as market orders are not accepted in an OFS.
  • Limit orders are executed solely when the market price aligns with the investor’s specified price.
  • OFS allocations are finalized at the conclusion of the trading session and not instantaneously.

In conclusion, an Offer for Sale offers retail investors a unique opportunity to acquire shares in a listed company. It presents a simplified and cost-efficient alternative to an IPO, facilitating investor participation in the stock market. Keep these key points in mind if you intend to bid in the SJVN Ltd. OFS, scheduled to open on September 22 for retail investors.

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