All you need to know about Offer for Sale (OFS)

by Libord Group One-stop Financial Services

What is OFS?

An Offer for Sale (OFS) is a method used to sell shares of a listed company through the stock exchange platform. It allows the promoters of the company to sell their shares to investors, and it is commonly used to comply with regulations that require a minimum public shareholding in India.

The process of an OFS involves the following steps:

·         Promoters decide to sell their stocks through an Offers for Sale.

·         The information about the OFS is sent to the stock exchanges at least two days before the sale.

·         The company announces the OFS date, which is usually only available for one trading day.

·         The floor price is announced, which is the minimum price at which the shares will be sold.

·         Investors place their bids above the floor price.

·         After all the bids are received, the company determines the cutoff price.

·         Investors who bid higher than the cutoff price are allotted shares, and the money is transferred to the promoters.

There are two types of investors in an OFS:

Retail investors and Institutional investors.

Retail Investors are individuals whose bid value is less than a certain amount, while Institutional Investors include entities like mutual funds, insurance companies, and foreign institutional investors.

Some advantages of an OFS include discounts for retail investors, time-saving compared to other methods, and no extra charges apart from regular securities transaction charges.

Before investing in an OFS, it is important to have a Demat account, ensure the bid amount is available in the trading account, place limit orders during specific trading hours, and be aware of the rules and regulations set by the company and securities regulators.

Difference between OFS and IPO:

·         An IPO is when a company sells its shares to the public for the first time to raise money for its growth, while an OFS is when existing shareholders sell their shares to the public.

·         For an IPO, the company receives the money from investors in exchange for ownership shares, which helps the company expand and grow. In an OFS, the selling shareholders receive the money from the sale of their shares.

·         The rules and regulations for an IPO involve appointing an investment bank, registering with the relevant authorities, and drafting a prospectus. In the case of an OFS, the company needs to inform the exchange before executing the sale.

·         The time taken for an IPO is usually a few days to a couple of weeks, whereas an OFS is typically completed within a single trading day.

·         An IPO involves higher costs, including advertising, underwriting, and regulatory requirements. On the other hand, an OFS has lower expenses, and investors bear regular transaction charges.

·         In an IPO, the investment bank sets a price range, and the allotment of shares depends on factors like oversubscription. In an OFS, the company provides a floor price, and investors bid at or above that price. Bidding below the floor price leads to rejection.

·         Once the shares are sold in an IPO, there can be no changes cancellations. In an OFS, investors can modify the bid specifics but cannot cancel it entirely.

·         An IPO increases the share capital of the company on its balance sheet. However, an OFS does not impact the company's balance sheet; it only involves the transfer of shares between existing shareholders.

To summarize, an IPO helps a company raise funds for growth, while an OFS allows existing shareholders to sell their shares. Both options have their advantages and considerations, so it is important to carefully evaluate the company and understand your investment choices before making a decision.

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Created on Jul 19th 2023 05:12. Viewed 68 times.

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