 "Sebi not keen on govt's OFS suggestions")
The central government's pressure to make further relaxations to the Offer For Sale (OFS) framework is being resisted by the capital markets regulator, the Securities and Exchange Board of India (Sebi).
The government wants the time between intimating the stock exchanges and launching a share sale to be reduced to one day, from the existing minimum of two days. The rationale is to prevent punters from short-selling a security and depressing its share price.
According to the people in the know, Sebi isn’t keen on reducing the gap or making any other substantial change. “We would not want to tinker with the OFS framework. The mechanism is working well. The requirement to reduce the notice period might not have much impact in the way of curtailing price volatility,” said a source.
Another allowance sought by the government was to reduce the time required to open a demat account from the current five days to less. The regulator has said it is exploring ways to reduce the time but would not make an exception for only government offers. “The government is seeking an aggressive strategy for creating awareness among retail investors to participate in its stake sales,” said an official.
Additionally, the government has also sought that the window for retail investors to be part of an OFS should be increased by one day. This possibility has not been ruled out by the regulator.
In most previous disinvestments, traders have hammered a stock by short-selling ahead of government’s divestment. Traders later cover their position by applying in the OFS at a lower price. A drop in share price of a public sector undertaking (PSU) hurts the government, as it reduces the disinvestment proceeds.
This time, the government was secretive about its Coal India share sale plans. The news of the exact day of disinvestment came in the public domain only two days ahead of the share sale, when the company intimated the exchanges.
Some experts say conducting an OFS on very short notice might impact demand, as investors will not get adequate time to arrange for funds. The retail quota for the Coal India OFS remained under-subscribed, as small investors had only a day to arrange for capital and taking an investment decision.
Another argument by the regulator is that the mechanism of OFS is primarily meant for institutional investors. A Follow-on Public Offer (FPO) is more of a means for retail participation. It had recently issued a discussion paper on FPOs, for allowing all PSUs to avail a fast-track mechanism that could reduce the timeline to four days. A Sebi official said it was ironing out an issue with regard to allowing retail investors’ bid at the cut-off price, encountered during the Coal India OFS.
The government wants the time between intimating the stock exchanges and launching a share sale to be reduced to one day, from the existing minimum of two days. The rationale is to prevent punters from short-selling a security and depressing its share price.
According to the people in the know, Sebi isn’t keen on reducing the gap or making any other substantial change. “We would not want to tinker with the OFS framework. The mechanism is working well. The requirement to reduce the notice period might not have much impact in the way of curtailing price volatility,” said a source.
Another allowance sought by the government was to reduce the time required to open a demat account from the current five days to less. The regulator has said it is exploring ways to reduce the time but would not make an exception for only government offers. “The government is seeking an aggressive strategy for creating awareness among retail investors to participate in its stake sales,” said an official.
Additionally, the government has also sought that the window for retail investors to be part of an OFS should be increased by one day. This possibility has not been ruled out by the regulator.
In most previous disinvestments, traders have hammered a stock by short-selling ahead of government’s divestment. Traders later cover their position by applying in the OFS at a lower price. A drop in share price of a public sector undertaking (PSU) hurts the government, as it reduces the disinvestment proceeds.
This time, the government was secretive about its Coal India share sale plans. The news of the exact day of disinvestment came in the public domain only two days ahead of the share sale, when the company intimated the exchanges.
Some experts say conducting an OFS on very short notice might impact demand, as investors will not get adequate time to arrange for funds. The retail quota for the Coal India OFS remained under-subscribed, as small investors had only a day to arrange for capital and taking an investment decision.
Another argument by the regulator is that the mechanism of OFS is primarily meant for institutional investors. A Follow-on Public Offer (FPO) is more of a means for retail participation. It had recently issued a discussion paper on FPOs, for allowing all PSUs to avail a fast-track mechanism that could reduce the timeline to four days. A Sebi official said it was ironing out an issue with regard to allowing retail investors’ bid at the cut-off price, encountered during the Coal India OFS.