Offer for sale or OFS is a method wherein listed firms are allowed to sell shares via the exchange platform. The OFS method was brought in by the Securities and Exchange Board of India (SEBI) back in 2012 as a simpler one to aid promoters of listed forms to dilute their stake. Anyone can bid for these shares, be it foreign institutional investors, retail investors or companies.
Before you ask the question of how to apply for offer for sale, you should know that the OFS is available only for the leading 200 companies in the share market, based on market cap. Also, the company would need to keep the stock exchanges in the loop about the OFS at least two days in advance. Further, SEBI has it that a minimum of 25 per cent of shares in an offer for sale procedure needs to be allocated for insurance and mutual fund firms. There is also a 10 per cent reserved for retail investors/buyers.
How to apply for OFS?
If you are wondering how to apply for OFS shares, read on.
- You would need a demat and trading account to invest in an OFS.
- If you are a retail investor, you can apply for OFS if the overall bid value doesn’t cross Rs 2 lakh. If it does, it is not eligible for an OFS.
- You can bid through your trading portal if you have an online account or you go offline by placing your bids with help from your dealer.
- An investor can place orders at or above the floor price. This is the price that sellers would need to provide.
- You don’t need any documents to bid in an offer for sale. You will just be required to provide the price you are willing to pay and the quantity of shares.
- Your OFS shares will be allocated in a single clearing or multiple clearing price. In a single clearing price, each and every investor is allocated shares at a single price. In a multiple clearing price, shares are allocated by prioritising the price of the share. So, if an X company’s OFS allocation is at multiple clearing price, and the highest bid for shares at 250, followed by 220, 210 and 200, and so, then, the person who has placed the bud at 250 , ie, the highest will be given priority for allotment of shares, followed by the others.
- There is also a cut-off price choice, wherein the investor can apply for shares at the cut-off price without having to worry about discovery of price during the bidding.
What is the difference between an OFS and IPO/FPO, then?
If the question of how to apply for OFS is on your mind, you may also be wondering about how different it is from an initial public offering or follow-on public offer. An IPO involves an unlisted company issuing shares and going public. In a follow-on public offer, the company is listed and it issues shares to new or already present shareholders. The FPO process happens after the IPO route has been taken. However, as mentioned earlier, the OFS is all about enabling dilution of promoters’ stakes in a company that’s listed. In the case of an OFS, fresh shares are not created.
While the IPO and FPO is all about raising funds in a protracted and long process, as it involves issuing of prospectus, receiving applications and then allotment of shares, an OFS happens in quick time, ie, in a single session of trading.
What are the advantages of an OFS?
- Now that you know the answer to the question on how to apply for OFS shares, it is time to turn your attention to the advantages of OFS. The OFS process typically involves a discount offered on the floor price for retail investors. This discount could be in the range of 5 per cent and is one of the main attractions for retail buyers for investing via OFS.
- Another advantage is that OFS doesn’t involve any paperwork, thereby making the whole process less time-consuming for a retail investor.
- When you ask how to apply for offer for sale, you may also wonder about any charges that are applicable for the process. The answer is that there are no extra charges, apart from the regular STT or securities transaction charges that apply for any equity investment.
An offer for sale is a hassle-free, cost-effective, and less time-consuming way for a retail investor to buy shares from a listed company. Similarly, for promoters too, it is a simple and convenient method to dilute their stakes in a listed company.