Rahul Guptan comments on the nuances of the year-old offer for sale mechanism and the rationale behind its introduction by the Securities and Exchange Board of India

In March 2012, the Aziz Premji Trust sold a part of its shareholding in Wipro using the offer for sale through stock exchange mechanism (OFS). This was the first such sell-down by a non-government promoter and the transaction raised US$140 million for the trust. The OFS route had been introduced by the Securities and Exchange Board of India (SEBI) in February 2012 and this transaction validated the thinking behind the new regulations.

Background

In order to understand the transaction and the OFS rules, we need to go back in time to appreciate why the OFS mechanism was required.

Historically, Indian companies were able to access capital markets with very low levels of dilution. For many years, the average extent of dilution in an initial public offering (IPO) was typically 10% of the issued capital.

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Rahul Guptan is a partner and member of the India capital markets team at Clifford Chance in Singapore. This article does not purport to be comprehensive or constitute any legal advice.