Offer for sale sinks stock prices

CHENNAI: The offer for sale (OFS) route may have helped companies comply with the minimum public shareholding norms stipulated by market regulator Sebi. But the low floor price in such issues has depressed the stocks of several companies, which have seen a huge erosion in market capitalization (m-cap ) after the completion of OFS.
The stock of public sector (PSU) minerals trading firm MMTC, which fixed a floor price of Rs 60 for its OFS on June 12, has been hammered on the bourses.The floor price was less than a third of the existing market price of the stock during the OFS. The MMTC scrip has tanked 58.2% in three weeks losing Rs 12,315 crore in m-cap to hit a 52-week low of Rs 88.3 on July 3. Incidentally, the MMTC stake dilution was the largest OFS in the PSU space.
Market observers believe that such offers are neither helping companies nor the investors . “There is a no need to rush through stake sales when the markets are in a bearish mode,” a veteran market participant said. “This piecemeal selling is dangerous. If investors keep losing money, they will not subscribe to further issues ,” said Kishor P Ostwal, managing director, CNI Research , an equities research provider.
“This (OFS) is a flawed model. They (companies) are trying to sell a stock that has a discovered price at a discounted rate,” said Deven R Choksey, MD, KR Choksey Shares and Securities. Several other PSU firms, which have to offload stakes to meet the public float norm of 10% by August 9, are already seeing pressure on their stock prices. While the stock of National Fertilizers, which has to shed 7.6% stake, hit a 52-week low on July 1, the Fertilizers and Chemicals Travancore scrip is trading close to its yearly lows.
Stocks of most companies that came up with a low floor price in the past few months have not been able to recover lost ground. In fact, a few companies have lost between a third and half of their peak mcap in the past few months. Multinational companies (MNCs), which had seen a runup in their stocks in anticipation of an open offer from the overseas parent, too have slumped as they had to resort to OFS to meet the revised norms.
The script is playing out yet again in the OFS of public sector (PSU) metals firm Hindustan Copper. The company’s stock hit a 52-week low of Rs 65 on July 2 when it announced a floor price of Rs 70 for the OFS. It settled just above the floor price when the OFS closed on July 3. The stock was trading well above Rs 80 for most of last month.