What Is OFS (Offer For Sale)?

Offer For Sale

A private company launches an initial public offering (IPO) for additional funding. The company sells shares to outside investors so that it can gain access to funds for various purposes. This includes the growth and expansion of the company.
However, the company’s financial problems do not end with an IPO. Sometimes, a company may need additional capital to meet its goals. That’s the time such companies can opt to go for an Offer for Sale (OFS).

An Offer for Sale is a simpler method wherein promoters in public companies can sell their shares and reduce their holdings in a transparent manner through the bidding platform for the Exchange. The OFS segment was earlier allowed only for the Promoters/Promoters’ Group Entities of listed Companies, to act as ‘Sellers’ to dilute/offload their holding to achieve minimum public shareholding of 25%. Now, however, the segment has been extended to non-promoters of eligible companies holding at least 10% of the share capital of the company.

HOW OFS WORKS?

In an OFS, promoters of a company dilute their stake by selling their shares on an exchange platform. Anyone including retail investors, companies, Foreign Institutional Investors (FIIs) and Qualified Institutional Buyers (QIBs) can bid on these shares.

HOW TO BID IN AN OFS?

In an OFS, a buyer has to provide a bid in order to acquire the shares. The company sets a ‘floor price.’ Buyers cannot bid at a price below the floor price. Once the bids are placed, shares are allocated to the different buyers. There is no minimum limit to participate in an OFS. A buyer can bid for even a single share in the OFS process.

DIFFERENCE BETWEEN OFS AND FPO

OFS and follow-on public offering (FPO) are two ways a company can raise capital by selling additional shares. However, there are differences between these two methods.

An FPO is generally a lengthy process. The company is required to issue a new prospectus, which is then submitted to the Securities and Exchange Board of India (SEBI). Following that, the company has to hire managers to take care of the sale. The sale of shares can last anywhere between three and five days.

On the other hand, an OFS is much simpler. There is no requirement for the company to file any formal paperwork. In addition, the sale of shares typically takes only a single trading day.

 

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