Understanding OFS: Decoding 13% drop in SJVN stock and its implications for investors!

In the world of stock markets and investments, where terms like IPO (Initial Public Offering) and FPO (Follow-on Public Offering) often dominate discussions, there’s another crucial concept that deserves attention – OFS, which stands for Offer for Sale.

Offer for Sale is a method used by listed companies to sell their shares through the stock exchange. It’s often employed by promoters or major shareholders looking to reduce their stake in the company. OFS stands out as an efficient and transparent way to sell shares, compared to traditional methods like private placements or block deals.

One notable advantage of OFS is its accessibility to retail investors. Through their brokers, retail investors can participate in OFS, making it a democratic avenue for share acquisition.

Benefits of OFS:

1. Transparency: OFS offers a transparent and efficient mechanism for selling shares in the open market.
2. Retail Investor Access: Retail investors can readily participate, ensuring broader participation.
3. Discounted Prices: OFS can present an opportunity for investors to buy shares at a discounted price compared to prevailing market rates.

Government’s SJVN OFS:

SJVN operates in the electricity generation sector and offers consultancy services for hydro-power projects.

Recently, the Indian government announced its plans to divest a 4.92% stake in SJVN Ltd through OFS. The offer for sale began for non-retail investors, with retail investors getting their chance later. The offering includes a Green Shoe option of 2.46%.

What is Green Shoe Option?

It is also known as an over-allotment option, is a stabilizing mechanism used in the stock market. The Green Shoe option is a valuable tool that underwriters use to help stabilize the stock price in the secondary market after an IPO. It ensures that the stock’s price reflects market demand and prevents excessive price fluctuations, benefiting both investors and the issuing company.

The floor price for each fully paid-up equity share was set at Rs 69 per share, reflecting a 15.59% discount over the BSE’s closing price. The total offer size, including oversubscription, is Rs 1,334 crore, with Rs 667 crore in the base offer and an equal amount in the Green Shoe option.

OFS continues to be a valuable tool for companies seeking to reduce their stake and raise capital while providing investors with opportunities to acquire shares in a transparent and regulated manner.

In Thursday’s trading session, SJVN Limited’s shares experienced a notable decline of 13.05%. This decline was accompanied by a substantial increase in trading volume, which surged by more than 1.11 times. Additionally, shareholders have something to look forward to, as the company has announced a final dividend of 0.62. The dividend is scheduled to be issued on September 21, 2023, with the book closure dates set from September 22, 2023, to September 28, 2023.

Furthermore, the stock has witnessed significant buying activity as it has given multibagger returns of more than 122% in the last one year.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions.