A private company launches an initial public offering (IPO) for sourcing additional funding. The company sells its shares to outside investors for procuring funds for business expansion, growth, and reduction of debt. However, a company’s financial problems do not end with an IPO. Sometimes, it may need additional capital to meet its goals. That’s the time such a company can opt for the option of Offer for Sale (OFS).
What is OFS?
OFS is a mechanism where promoters of the company will sell their shares directly to the public in a transparent manner. First introduced by SEBI in 2012, through OFS, promotors of public companies can sell their shares and reduce their holding in a publicly listed company. For a publicly listed company, this is a much simpler way to sell shares and raise capital compared with other options such as FPO. In a FPO, a publicly listed company issues additional shares to investors.
How does OFS work?
In an OFS, promoters of a publicly listed company dilute their stake by selling their shares on a stock exchange platform. Anyone including retail investors, companies, Foreign Institutional Investors (FIIs), and Qualified Institutional Buyers (QIBs) can bid on these shares.
Who can participate in OFS?
Here’s the list of investors who can participant in an OFS:
- Retail investors
- Insurance companies
- Mutual funds
- Qualified Institutional Buyers (QIBs)
- Non-Resident Indians (NRIs)
- Foreign Portfolio Investors (FPIs)
- Trusts, Hindu Undivided Families (HUFs), Body Corporates
How to bid in 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 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.
How to apply for OFS?
As an individual investor, you can apply in the retail category of the OFS. In this category, your total bid value should not exceed Rs. 2 lakhs. If you cross that amount, your bid becomes ineligible. You will require a Demat and trading account to participate in an OFS. In case you are an offline investor, you can still place your bids through an assigned dealer.
What are the rules & regulations you need to follow in an OFS?
- This facility is available to companies with market capitalization of Rs.1000 crores and above in the share market
- Non-promoter shareholders with more than 10% of share capital are also eligible to offer shares through OFS.
- The company has to inform the stock exchanges at least two days before the OFS.
- SEBI has mandated that at least 25% of the shares in OFS must be reserved for mutual funds and insurance companies.
In addition, a 10% reservation has been made for retail buyers.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.