Government of India to Sell up to 3% Stake in Indian Overseas Bank; What it Means to Investors?

The Government of India has officially announced its plan to sell up to a 3 per cent stake in the Indian Overseas Bank (IOB) through a mechanism known as an Offer for Sale (OFS). This move is primarily designed to help the bank meet the minimum public shareholding norms set by SEBI, which require listed companies to have at least 25 per cent of their shares held by the public. Currently, the government owns a massive 94.6 per cent of the bank, and even after this sale, it will remain the dominant promoter and owner of the institution.

What is an Offer for Sale (OFS)?

An OFS is a simplified method where existing owners (promoters) sell their shares to the public through the stock exchange. Unlike an IPO, where a company issues new shares to raise capital for business operations, an OFS involves the transfer of "old" shares from the current owner to new investors. It is a faster, more transparent way for the government to reduce its stake in public sector undertakings.

Key Details of the IOB Stake Sale

• Total Stake on Offer: The government is selling a 2 per cent base stake (38.51 crore shares) with a "green shoe" option to sell an additional 1 per cent (19.26 crore shares) if there is high demand.
• Floor Price: The minimum bidding price is set at Rs 34 per share. This is roughly a 7.6 per cent discount compared to the recent market closing price of Rs 36.57.
• Total Value: At the floor price, the total value of the sale is estimated to be over Rs 1,964 crore.
• Reservation for Small Investors: 10 per cent of the offer is reserved for retail investors (individuals), while 25 per cent of the non-retail category is set aside for mutual funds and insurance companies.

Important Dates to Remember

The sale is conducted over two trading days to ensure different types of investors have dedicated time to participate:

• December 17 (Wednesday): The window opens for Non-Retail Investors, such as large companies and institutional buyers.
• December 18 (Thursday): The window opens for Retail Investors (regular individuals) to place their bids.

Market Context and Company Background

Indian Overseas Bank is a major Chennai-based public sector lender with a vast national and international presence. Despite its large scale, IOB’s stock has been a "market laggard" over the past year, falling about 34 per cent while the broader PSU Bank index gained 16 per cent. The government’s decision to offer these shares at a discount is likely intended to attract investors who have been cautious about the bank's recent performance.

By increasing the number of shares available to the public, this move improves the "liquidity" of the stock, making it easier for people to buy and sell shares in the open market. Following this transaction, the government will still hold over 91 per cent of the equity, maintaining its firm control over the bank's operations.

Disclaimer: The article is for informational purposes only and not investment advice.