Offer For Sale (OFS) lets existing shareholders sell shares to the public at a predetermined minimum price through the stock exchange, offering a straightforward, transparent alternative to an IPO.
Contents:
- Offer for sale meaning
- Offer For Sale Example
- How Offer For Sale Works?
- Advantage of Offer for Sale
- OFS Vs IPO
- How To Apply For Offer For Sale?
- What Is OFS? – Quick Summary
- Offer For Sale- FAQs
Offer for sale meaning
Offer for Sale (OFS) is a mechanism through which existing shareholders, including major stakeholders and promoters, can sell their shares directly to the public. Unlike an Initial Public Offering (IPO), which companies use to raise capital by issuing new shares, an OFS involves the sale of existing shares, and thus, doesn’t dilute the company’s share capital.
In an OFS, the shares are offered at a specific “floor price” or higher, set by the sellers. This floor price is the minimum price at which the shares can be sold. Investors cannot bid below the floor price, ensuring the sellers get an acceptable amount for their shares.
The OFS process takes place through a dedicated window on the stock exchange, separate from the regular trading platform. This dedicated window provides a transparent environment where the order book is visible to all participants. Investors can place their bids, knowing the quantity of shares offered and the indicative price, which is based on the bids received.
Overall, an OFS provides a streamlined, transparent, and efficient way for promoters and existing shareholders to sell their stakes to the public or institutional investors, often helping them to comply with regulatory requirements for minimum public shareholding.
Offer For Sale Example
In 2020, Hindustan Aeronautics Limited, also known as HAL, decided to sell a portion of its shares to the public using the Offer For Sale (OFS) procedure. This decision was made to comply with market regulators’ rules regarding the minimum number of publicly held shares. HAL aimed to sell a 15% stake through this method.
Now, in an OFS, the selling company decides a minimum price at which they are willing to sell their shares, known as the floor price. In this case, HAL set the floor price at ₹1,001 for each share. Investors interested in buying these shares could bid at this price or higher.
The response from investors was strong. The total number of shares they wanted to buy was 1.6 times more than what was offered. This shows that the OFS method was well-received, and it helped HAL achieve its goal of selling a portion of its shares to comply with the market rules. Through this process, HAL demonstrated that OFS is an efficient and accepted way for companies to sell shares to the public.
How Offer For Sale Works?
OFS is conducted on a separate window of the stock exchange for a specific period. The seller decides the floor price, and bids are invited from non-retail and retail investors. The allocation is done based on the bids received.
- Floor Price Determination: The seller sets a floor price, the minimum price at which shares are offered.
- Bidding: Investors bid for shares at or above the floor price within the specified time frame.
- Allocation: Shares are allocated to bidders, often favoring the highest bids first.
Advantage of Offer for Sale
The primary benefit of an OFS is its simplicity compared to an IPO. It is a quicker way for promoters to comply with public shareholding requirements by selling their shares. Other benefits include:
- Transparency: Conducted on a separate stock exchange window, ensuring transparency.
- Price Discovery: Investors bid at or above the floor price, aiding in price discovery.
- Less Time-consuming: Requires less time to execute compared to an IPO.
- Accessibility: Enables broader investor participation.
OFS Vs IPO
The main difference between an Offer For Sale (OFS) and an Initial Public Offering (IPO) is that an OFS is a sale of existing shares by promoters or shareholders, while an IPO is the sale of fresh shares to the public by the company itself.Â
| Parameter | Offer For Sale (OFS) | Initial Public Offering (IPO) |
| Nature of Shares | Sale of existing shares by promoters. | Issuance of new shares by the company. |
| Regulatory Process | Simplified process with less regulatory paperwork. | Lengthy process with extensive regulatory paperwork. |
| Time Frame | Faster process, completed in a shorter time frame. | Takes a longer time due to regulatory and other compliances. |
| Cost | Less expensive due to fewer administrative costs. | More expensive due to underwriting and other associated costs. |
| Price Determination | Floor price determined by the seller. | The price range determined through the book-building process. |
| Investor Base | Available to retail and non-retail investors. | Primarily targeted towards institutional and retail investors. |
How To Apply For Offer For Sale?
Offer For Sale is a straightforward process where existing shareholders sell their shares on a dedicated platform of the stock exchange. Investors can participate by placing their bids for buying these shares.
Key steps include:
- Registration:
- Open Demat and trading account through a brokerage.
- Complete KYC requirements.
- Bidding:
- Monitor OFS announcements on exchanges or via your broker.
- Bid within the specified time, at or above the floor price set by the seller.
- Allocation:
- Higher bids might preferentially receive shares.
- Post-bidding, check share allocation in your Demat account.
- Payment is automatically handled through your trading account.
Follow these steps to be an investor in an Offer For Sale and possibly get shares of companies at good prices.
What Is OFS? – Quick Summary
- OFS is a method for existing shareholders to sell their shares directly to the public, aiding in complying with public shareholding norms.
- Through OFS, shares are sold at a decided minimum price or higher in a separate section of the stock exchange meant for this process.
- A real-world example is when HAL sold a 15% stake via OFS in 2020, setting a floor price of ₹1,001 per share, receiving bids 1.6 times the offer.
- The process involves setting a floor price, inviting bids, and allocating shares, making it a simpler and quicker alternative to IPOs.
- OFS’s primary advantage is its simplicity and lower cost compared to an IPO, although both have their unique processes and targeted investor bases.
- Applying for an OFS involves registering, bidding within a specified timeframe, and awaiting share allocation based on the bids received.
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Offer For Sale- FAQs
What do you mean by OFS?
OFS, or Offer For Sale, is a mechanism that allows existing shareholders or promoters to sell their shares directly to the public on a designated platform within the stock exchange.
What is the difference between OFS and IPO?
The primary difference between OFS and IPO is that OFS involves selling existing shares, whereas IPO involves issuing new shares to the public.
Who can invest in OFS?
The following can be invested in OFS:
- Retail Investors
- Non-retail Investors
- Qualified Institutional Buyers
What is the benefit of OFS?
In the OFS, small investors can often get a discount of up to 5%, which boosts their long-term returns. Additionally, bidding in OFS is inexpensive since there are no extra fees, making it a more affordable way to participate than IPOs.
How do I buy shares in OFS?
Investors need to have a Demat and trading account and place bids on the specified date at or above the floor price through their brokers or online trading platforms.
What is the cutoff price in OFS?
The cutoff price in OFS is the minimum price at which the shares are sold. Investors can bid at this price or higher to participate in the OFS.
