Companies issue shares in Initial Public Offering to raise additional funds. In case, the shares are not enough to, and there is a need for more funds, companies can opt for Offer for Sale (OFS).
What is an Offer for Sale?
An OFS allows promoters to reduce their holdings in listed companies transparently. The promoters can sell their shares on an exchange platform to raise funds. It is a shorter and easier way of raising capital. It is a part or full of shareholding in a particular company by the existing stakeholders. Shareholders, retail investors, companies, Foreign Institutional Investors, and Qualified International Buyers can bid on these shares.
The maximum share allocation per bidder is 25% of the offering, and there are some reservations on the total shares.
Special Reservations of an Offer for Sale:
1. A minimum of 10 percent of the offered shares is reserved for retail investors.
2. A minimum of 25 percent of the shares offered is reserved for mutual funds and insurance companies.
With OFS, promoters can sell their shares directly in an exchange instead of waiting for public offering. Shareholders who hold more than 10 percent in a company are only allowed to benefit from Offer for Sale.
Government Companies use this strategy to reduce their holding in a transparent channel through an exchange. The money raised is not transferred to the company. Instead, it is transferred to the promoter for his needs in exchange for giving up the ownership of shares.
How to apply for OFS?
To apply for Offer for Sale as an individual investor, you can do so in the retail category. The total bid value should not exceed Rs. 2 lakh. If the amount exceeds, it does not belong to the retail category but in the Non-Institutional Investor (NII) category. You will require a Demat account and a trading account to participate in OFS. If you are an offline investor, you will need to place bids through an assigned dealer.
Rules and Regulation in OFS:
- Only the top 200 companies are available for OFS in share market. Ranks are based on market capitalization.
- 10 percent of shares are reserved for retail buyers
- 25 percent of shares in an OFS are reserved for mutual funds and insurance companies.
- Shareholders with more than 10 % capital are also eligible to offer shares through OFS like Mutual funds, UTI, Banks, Financial Institution, Institutional Investors, etc.
- The company has to inform the exchanges at least two days before the OFS.
- Settlement takes place on trade for trade basis.
Get your Demat account to get started with OFS.