Shareholders, usually promoters, commonly use an Offer for Sale (OFS) to sell a portion of their stake in a listed company to the public. Often employed by large organizations, government entities, and private equity firms, OFS allows promoters to divest their holdings without going through complex procedures typically associated with IPOs.
This detailed guide provides insights into the concept of Offer for Sale, its mechanism, key benefits, the difference between an IPO and OFS, and how retail investors can participate in OFS events. This overview is beneficial for anyone looking to understand OFS and its significance in the stock market.
An Offer for Sale (OFS) is a streamlined process where existing shareholders, primarily promoters, offer their shares for sale to the public. Unlike an IPO, which involves the issuance of new shares, OFS only involves selling existing shares, meaning that the company does not receive any new capital from the offering. It serves as a mechanism for promoters to comply with regulatory requirements or reduce their shareholding.
Introduced by the Securities and Exchange Board of India (SEBI), the OFS framework simplifies the process of share divestment in the stock market. Investors typically use it when they need to sell large blocks of shares without disrupting the stock’s market price or triggering prolonged administrative procedures.
The OFS method is generally available for companies that are part of the BSE 100 or NSE 100 index or for publicly listed firms with a market capitalization above a certain threshold.
Unlike IPOs, which often last several days, the bidding window for OFS typically remains open for a single trading day, allowing quick completion.
To encourage participation, a discount is often offered to retail investors on the floor price of the shares. This price advantage makes OFS an attractive option for individual investors.
SEBI mandates that all listed companies maintain a minimum public shareholding of 25%. Companies may use OFS to meet this regulatory requirement.
The OFS process is transparent and conducted on the stock exchange platform, which ensures a level playing field for all investors and enhances efficiency.
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OFS is often confused with public offerings like IPOs or FPOs, as both involve share sales in the primary market. However, OFS is distinct in its operational structure:
In an IPO, new shares are issued by the company to raise capital. However, in OFS, existing shares are sold by the promoters.
An IPO increases the company’s capital base, whereas an OFS does not impact the company’s balance sheet as it only transfers ownership.
Stock exchanges typically complete OFS transactions within one day, while IPOs take longer because they involve regulatory requirements and extensive documentation.
Here’s a step-by-step guide to understanding the Offer for Sale process:
The company announces the OFS plan and discloses key details, such as the number of shares offered, the floor price, any discounts, and the bidding date.
The OFS process is conducted on the exchange platform. Interested investors place bids for the shares, specifying the quantity and bid price. Retail investors usually have a separate quota, typically reserved at a discounted price.
The floor price, or minimum price, is set by the sellers. Bids are only considered if they meet or exceed this price.
Shares are allocated to successful bidders based on the demand, bid prices, and priority rules. If demand exceeds the number of shares offered, a pro-rata allocation may apply.
Once the bidding and allocation are completed, the system settles by transferring shares to buyers and paying the consideration to sellers.
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The OFS process is efficient, with bids accepted and processed in a short timeframe, reducing the time promoters need to commit to the divestment.
Conducted on a stock exchange platform, OFS offers high transparency, enabling all investors to participate on equal terms.
OFS prevents excessive price volatility by allowing a controlled sale of shares in the market.
By offering a discount to retail investors, OFS encourages broader public participation, supporting liquidity and reducing promoter concentration.
Companies can use OFS to comply with SEBI’s requirements for minimum public shareholding, making it an essential tool for public companies.
| Aspect | Offer for Sale (OFS) | Initial Public Offering (IPO) |
| Nature of Shares | Existing shares of promoters | New shares issued by the company |
| Capital Raising | No new capital; funds go to selling shareholders | New capital raised for the company |
| Regulatory Process | Simpler and faster | Lengthy regulatory process |
| Pricing Mechanism | Floor price set by sellers | Price discovered through book-building |
| Duration of Bidding | Typically one trading day | Multiple days |
| Share Allocation | Based on demand; separate retail quotas often | Allocation to retail and institutional investors |
In India, several high-profile OFS transactions have taken place, especially in public sector undertakings (PSUs). Some notable examples include:
The Government of India frequently uses OFS to divest stakes in the Oil and Natural Gas Corporation (ONGC) to raise funds and meet disinvestment targets.
In a large-scale OFS, the government sold a portion of its stake in Coal India to increase public shareholding and reduce promoter concentration.
LIC has also used OFS for partial disinvestment, providing opportunities for retail and institutional investors to participate in one of India’s largest financial institutions.
Retail and institutional investors can participate in an OFS using the following steps:
Ensure your brokerage platform supports participation in OFS. Most large brokers offer this service.
Check the company’s announcement for details like floor price, bidding date, and retail discount, if available.
On the day of the OFS, place your bid on the broker’s platform, specifying the price and quantity of shares you wish to purchase.
After the bidding ends, the company allocates shares based on demand and allows them to be successful bidders.
Once the allocation is successful, the system transfers the shares to your demat account and deducts the purchase amount.
An Offer for Sale (OFS) is an efficient, transparent, and effective mechanism for promoters of publicly listed companies to sell shares to the public. It plays a crucial role in helping companies comply with public shareholding norms while offering retail investors the opportunity to purchase shares, often at a discount. Through its simplicity and rapid execution, OFS has become a preferred tool for both government disinvestments and corporate promoter divestments.
The OFS framework is highly beneficial for all participants in the market from companies seeking compliance to retail investors looking for discounted share purchases. As OFS continues to evolve, it will likely remain an essential part of the primary market landscape in India and other regions.
OFS is a process by which promoters of a listed company sell their shares to the public through the stock exchange platform.
In an OFS, existing shares are sold by promoters without raising new capital for the company, whereas an IPO involves issuing new shares.
The floor price is the minimum price at which shares are available for bidding in an OFS.
Yes, retail investors can participate in an OFS, often with a reserved quota and a discount on the floor price.
Typically, the OFS process is open for a single trading day, providing a short window for bidding.
Companies use OFS for promoter divestment, regulatory compliance, and meeting public shareholding norms.
If demand exceeds supply, shares are allocated on a pro-rata basis, prioritizing higher bids.
No, OFS does not raise new capital as it involves the sale of existing shares owned by promoters.
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