India’s Offer-for-Sale (OFS) Route in Disinvestment

India's Offer-for-Sale (OFS) Route in Disinvestment mind map
Recent News
SAIL Offer-For-Sale
Kick-off date
December 5
Over-subscribed by more than two times
Retail participation
Accounted for 2.6 times over-subscription
LIC acquired over 72% of shares
Representing over 3% stake
Over Rs 1,700 crore for government
Limited from private and foreign institutional investors
Government-owned financial institutions played major role
Divest 7% Stake in NLC India
march 8, 2024
Introduced in 2012
To achieve minimum public shareholding norms
Mandated by SEBI
Promoter holdings not to exceed 75%
Strategic Disinvestment Policy 2015-20
Key pillars
Minority stake sale
Strategic Disinvestment with management control transfer
Minority Stake Sale
Government retains control over management
Historically auctioned to institutions or public
Strategic Disinvestment
Sale of substantial government shareholding
Along with management control transfer
Applied to Central Public Sector Enterprises (CPSEs)
Life Insurance Corporation (LIC)
Major participant in OFS
Securities and Exchange Board of India (SEBI)
Regulatory body for OFS
Department of Investment and Public Asset Management (DIPAM)
Oversees disinvestment processes
Auctioned to institutions or offloaded to public
Priced attractively with meaningful discounts
Reduces fiscal load on exchequer
Improves efficiency and competitiveness of PSUs
Promotes private sector ownership and market-oriented approach
Increases transparency and accountability
Resistance from political parties and labor organizations
PSUs may not compete successfully due to bureaucratic structure
Potential for labor-related issues
Valuation and market competition challenges
Regulatory and legal complexities
Way Forward
Strategic planning in announcing disinvestments
Pricing strategy to attract more private buyers
Managing supply and demand dynamics for better valuations

The Offer-for-Sale (OFS) route in disinvestment refers to a method by which the Indian government sells its stake in public sector undertakings (PSUs) to reduce its shareholding, aiming to meet public shareholding norms set by the Securities and Exchange Board of India (SEBI). Initiated in 2012, OFS is utilized to facilitate government’s disinvestment objectives, including reducing its fiscal burden and making PSUs more autonomous by decreasing government influence. It focuses on minority stake sales where the government retains control post-sale, and strategic disinvestments leading to the transfer of management control. Despite its potential for improving PSU efficiency and market competitiveness, the OFS route faces challenges like limited interest from private and foreign institutional investors, valuation complexities, and resistance from political and labor groups. Enhancing the strategic planning of disinvestment announcements, ensuring attractive pricing, and addressing supply-demand dynamics are crucial steps forward​​​​.

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