The Securities and Exchange Board of India (“SEBI”) has introduced an additional framework for Offer for Sale (“OFS”) of shares to employees through the stock exchange mechanism. This move comes as a refinement to the existing OFS framework introduced in the Master Circular dated October 16, 2023, aiming to simplify procedures and reduce complexities associated with offering shares to employees.
Under the existing OFS framework, companies were eligible to offer shares to employees outside the stock exchange platform based on the price discovered or at a discounted price. SEBI noted that this procedure was time-consuming and involved additional costs. Consequently, SEBI has now allowed promoters to offer shares to employees in OFS through the Stock Exchange Mechanism.
Deciphering OFS
OFS is a mechanism enabling current shareholders or promoters to divest their shares to the public in the secondary market, directing the proceeds to the sellers rather than the company. The exchange facilitates a distinct platform, managed by stockbrokers, for the execution of the OFS process. Utilization of OFS for fund routing is permissible when promoters aim to liquidate their holdings or fulfil minimum public shareholding prerequisites.
Procedure for OFS to Employees through Stock Exchanges
The procedure for OFS to employees through stock exchanges involves specific steps to streamline the process. The timing is synchronized with the retail category, occurring on T+1 day, with a newly introduced "Employee" category for bidding during trading hours on the same day. A predetermined number of shares are reserved for employees, as outlined in the OFS notice by promoters. The bidding process requires employees to select the "Employee" category, bidding at the cut-off price of T+1 day, disclosed under the retail category.
Also, the allotment prices are determined based on the retail category cut-off, capping individual bids at INR 5,00,000, with each employee eligible for shares up to INR 2,00,000. In the event of under-subscription, the remaining shares may be proportionately allotted to employees exceeding the INR 2,00,000 limit. Further, employees must pay upfront the margin equivalent to 100% of the order value in cash or cash equivalents. Bids under the "Employee" category remain undisclosed on the stock exchange website, and the bid book is separated for allotment purposes.
Moreover, the clearing and settlement occur on T-1 day, with promoters transferring all OFS shares, including those reserved for employees, to the designated clearing corporation. This comprehensive framework aims to enhance efficiency and transparency in the OFS process for employees through stock exchanges.
Our Take
SEBI's additional framework for OFS to employees through the stock exchange mechanism marks a significant step toward simplifying processes and reducing complexities in offering shares to employees. By allowing promoters to utilize the stock exchange mechanism for employee OFS, the regulator aims to enhance efficiency, ease compliance, and minimize costs associated with the procedure. This move is expected to streamline employee participation in OFS, providing a more straightforward and transparent process for both promoters and employees.
Comments