- Date : 01/09/2022
- Read: 5 mins
The OFS issue has to be announced two trading days in advance, kept open for one day, and shares allotted in T+2 days, making it a preferred route for promoters to sell shares.
An Offer For Sale (OFS) is a process through which the promoters of a listed company can sell their shares to the general public. OFS is a transparent process carried out through the bidding platforms of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). There is no minimum lot application; an investor can apply even for a single share in an OFS issue.
Stock market regulator Securities and Exchange Board of India (SEBI) introduced the OFS facility in 2012. The Government of India had come out with an OFS issue to sell up to 1.5% stake in Oil and National Gas Company (ONGC) shares. Here are the OFS details:
- General category investors had to submit bids on 30 March 2022, and retail investors had to submit bids on 31 March 2022. The Government had reserved 10% of the issue size for retail investors.
- The bidding time was from 9:15 am to 3:30 pm.
- Bids could be submitted through the bidding systems of BSE and NSE.
- The minimum bid was one share.
- The floor price was Rs 159 per share.
The retail category got oversubscribed 2.66 times, and the general category was oversubscribed 1.79 times. The allotment price was fixed at Rs 159.8 per share.
Now that we understand the meaning of offer for sale, let us understand the other details.
Who can offer shares through the Offer For Sale?
The OFS facility can be used by the top 200 companies in terms of market capitalisation. The following entities can offer shares through the OFS mechanism:
- Promoters
- Promoter group entities
- Non-promoters holding at least 10% share capital in the company
Who can invest through the OFS?
Retail investors and institutional investors can bid for shares available through an OFS.
a) Retail investors
Individual investors whose total bid value does not exceed Rs 2 lakh can apply through the retail investor category. As per SEBI rules, 10% of the OFS issue size must be reserved for retail investors. Some companies offer OFS shares at a discount (usually 5%) to retail investors. However, a discount is not compulsory and is entirely at the promoter’s discretion.
b) Institutional investors
This category includes mutual funds, insurance companies, Foreign Portfolio Investors (FPIs), Qualified Institutional Buyers (QIBs), etc. As per SEBI rules, 25% of the OFS shares offered must be reserved for mutual funds and insurance companies.
Why do promoters sell shares through OFS?
Here are some reasons why promoters sell shares through the OFS route:
a) To meet the SEBI shareholding requirement
As per SEBI regulations, promoters can’t hold more than a 75% stake in a stock market listed company. Once the company completes the IPO and lists on the stock exchanges, the promoters have to bring down their holding to below 75% within a specified period.
The Government of India uses the OFS route to raise financial resources and divest its stake in listed PSUs to meet SEBI shareholding requirements. In FY 2021-22, the Government came out with OFS in six companies: ONGC, Hindustan Copper, HUDCO, NMDC, RNVL, and IRCON International.
b) Investing in new businesses
Many promoters run multiple businesses. A promoter may sell shares through OFS in one listed entity to raise money for investing in another entity to meet its capital requirements.
c) Raising funds for personal reasons
A promoter may sell shares through OFS to raise financial resources for personal reasons. This can include repaying debt, buying property, charity, etc.
How does the OFS process work?
The OFS process works as follows:
- Once the promoters decide to sell shares through OFS, they have to inform the stock exchanges a minimum of two days in advance.
- The company has to announce details such as the offer date and floor price. The OFS issue can be open only for one trading day. The floor price is the minimum price that the investors can bid for. Bids below the floor price will not be accepted. The floor price is usually kept at a discount to the market price. The OFS mechanism helps in transparent price discovery.
- After the bids close, the company announces the cut-off price. The shares will be credited to the Demat accounts of successful bidders in T+2 days. In case of rejected bids, the money will be refunded.
Also Read: A Woman's Guide To Investing In IPOs
What is the difference between OFS and FPO?
Promoters can sell shares in their listed entity either through an OFS or a Follow-on Public Offer (FPO). OFS has certain benefits compared to FPO. The following tables highlight the differences between the two:
Most promoters prefer to use the OFS route to sell shares due to its cost-effectiveness and faster process.
OFS issues in the recent past
Some companies that have come up with an OFS issue in the recent past include:
(Source: https://www1.nseindia.com/live_market/content/live_watch/offer_sale/ofs_sale.htm)
Note: The above data is for the general category and not the retail category.
Also Read: Understanding The Differences Between IPOs And FPOs
OFS is a transparent and faster mode of selling shares
Through OFS, promoters can sell shares in a transparent manner to investors. A company has to make the OFS announcement at least two trading days in advance and keep the OFS issue open for one trading day. Successful bidders get the shares in their Demat account in T+2 days. OFS helps in transparent price discovery. Due to these reasons, OFS is a preferred mode for promoters to sell shares and raise funds.
An Offer For Sale (OFS) is a process through which the promoters of a listed company can sell their shares to the general public. OFS is a transparent process carried out through the bidding platforms of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). There is no minimum lot application; an investor can apply even for a single share in an OFS issue.
Stock market regulator Securities and Exchange Board of India (SEBI) introduced the OFS facility in 2012. The Government of India had come out with an OFS issue to sell up to 1.5% stake in Oil and National Gas Company (ONGC) shares. Here are the OFS details:
- General category investors had to submit bids on 30 March 2022, and retail investors had to submit bids on 31 March 2022. The Government had reserved 10% of the issue size for retail investors.
- The bidding time was from 9:15 am to 3:30 pm.
- Bids could be submitted through the bidding systems of BSE and NSE.
- The minimum bid was one share.
- The floor price was Rs 159 per share.
The retail category got oversubscribed 2.66 times, and the general category was oversubscribed 1.79 times. The allotment price was fixed at Rs 159.8 per share.
Now that we understand the meaning of offer for sale, let us understand the other details.
Who can offer shares through the Offer For Sale?
The OFS facility can be used by the top 200 companies in terms of market capitalisation. The following entities can offer shares through the OFS mechanism:
- Promoters
- Promoter group entities
- Non-promoters holding at least 10% share capital in the company
Who can invest through the OFS?
Retail investors and institutional investors can bid for shares available through an OFS.
a) Retail investors
Individual investors whose total bid value does not exceed Rs 2 lakh can apply through the retail investor category. As per SEBI rules, 10% of the OFS issue size must be reserved for retail investors. Some companies offer OFS shares at a discount (usually 5%) to retail investors. However, a discount is not compulsory and is entirely at the promoter’s discretion.
b) Institutional investors
This category includes mutual funds, insurance companies, Foreign Portfolio Investors (FPIs), Qualified Institutional Buyers (QIBs), etc. As per SEBI rules, 25% of the OFS shares offered must be reserved for mutual funds and insurance companies.
Why do promoters sell shares through OFS?
Here are some reasons why promoters sell shares through the OFS route:
a) To meet the SEBI shareholding requirement
As per SEBI regulations, promoters can’t hold more than a 75% stake in a stock market listed company. Once the company completes the IPO and lists on the stock exchanges, the promoters have to bring down their holding to below 75% within a specified period.
The Government of India uses the OFS route to raise financial resources and divest its stake in listed PSUs to meet SEBI shareholding requirements. In FY 2021-22, the Government came out with OFS in six companies: ONGC, Hindustan Copper, HUDCO, NMDC, RNVL, and IRCON International.
b) Investing in new businesses
Many promoters run multiple businesses. A promoter may sell shares through OFS in one listed entity to raise money for investing in another entity to meet its capital requirements.
c) Raising funds for personal reasons
A promoter may sell shares through OFS to raise financial resources for personal reasons. This can include repaying debt, buying property, charity, etc.
How does the OFS process work?
The OFS process works as follows:
- Once the promoters decide to sell shares through OFS, they have to inform the stock exchanges a minimum of two days in advance.
- The company has to announce details such as the offer date and floor price. The OFS issue can be open only for one trading day. The floor price is the minimum price that the investors can bid for. Bids below the floor price will not be accepted. The floor price is usually kept at a discount to the market price. The OFS mechanism helps in transparent price discovery.
- After the bids close, the company announces the cut-off price. The shares will be credited to the Demat accounts of successful bidders in T+2 days. In case of rejected bids, the money will be refunded.
Also Read: A Woman's Guide To Investing In IPOs
What is the difference between OFS and FPO?
Promoters can sell shares in their listed entity either through an OFS or a Follow-on Public Offer (FPO). OFS has certain benefits compared to FPO. The following tables highlight the differences between the two:
Most promoters prefer to use the OFS route to sell shares due to its cost-effectiveness and faster process.
OFS issues in the recent past
Some companies that have come up with an OFS issue in the recent past include:
(Source: https://www1.nseindia.com/live_market/content/live_watch/offer_sale/ofs_sale.htm)
Note: The above data is for the general category and not the retail category.
Also Read: Understanding The Differences Between IPOs And FPOs
OFS is a transparent and faster mode of selling shares
Through OFS, promoters can sell shares in a transparent manner to investors. A company has to make the OFS announcement at least two trading days in advance and keep the OFS issue open for one trading day. Successful bidders get the shares in their Demat account in T+2 days. OFS helps in transparent price discovery. Due to these reasons, OFS is a preferred mode for promoters to sell shares and raise funds.
