OFS allowances hit Sebi roadblock

The government's move to relax regulations governing Offer for Sale (OFS) may hit a Sebi roadblock.

Sources close to the development indicate that Sebi may not be able to accept all the considerations for OFS mechanism while divesting stake in Public Sector Undertakings (PSU).

"We would not want to tinker with the way OFS works currently as the mechanism is working well. The requirement to reduce the notice period may not have much impact in the way of curtailing price volatility," said a source.

Another argument by the regulator is that the mechanism of OFs is primarily meant for institutional investors and Follow on Public Offer (FPO) is more of a means for retail participation.

For FPO recently, the regulator came out with a discussion paper allowing all PSUs to avail the fast track mechanism that could reduce the timeline to just four days.

Another allowance sought by the government was to reduce the time required to open a Demat account from the current five days to less number of days.

The regulator has stated that they are exploring ways to reduce the time for opening a Demat account but would not be able to make an exception for only government offers.

"The government is seeking an aggressive strategy for creating awareness among retail investors to participate in stake sale," said an official.

In the recently conducted Coal India OFS, the retail quota was under subscribed at 44% of the 20% quota reserved at a discount of 5%. Retail investors put in bids worth Rs 1,852.55 crore during the one-day offer for sale. Through Coal India the government raised Rs 22,577 crore.

Additionally, the government has also sought that the window for retail investors to be part of OFS should be increased by one day. This possibility has not been ruled out by the regulator.

Securities and Exchange Board of India ( SEBI )