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An Offer for Sale (OFS) is a streamlined method for promoters and other eligible shareholders of a listed company to sell their existing shares through the stock exchange bidding platform.
The company does not issue any fresh shares in this process, nor does it receive the proceeds. The money raised goes directly to the selling shareholders. OFS gives promoters a transparent way to reduce shareholding and helps companies easily meet the Minimum Public Shareholding (MPS) requirements mandated by SEBI.
This article explains the OFS in detail.
Key Takeaways
- OFS allows promoters and other eligible shareholders to sell existing shares through the stock exchange. No fresh shares are issued.
- OFS is available to companies with a market capitalisation of ₹1,000 crore and above.
- Retail investors and institutions (mutual funds, insurance companies) each get a reserved quota in every OFS.
- Retail bids are limited to ₹2 lakh. Bids above this amount are treated as non-retail bids.
- The government also uses OFS to sell stakes in public sector companies as part of its disinvestment programme.
What Is an Offer for Sale?
An Offer for Sale allows existing shareholders to sell shares transparently via exchange-backed window systems. No new shares are generated; existing holdings simply change hands.
Eligible sellers include promoters, promoter group entities, and non-promoter shareholders. The mechanism also serves as a primary tool for the government to execute disinvestment plans efficiently.
Because transactions execute through stock exchanges, the live bidding data, demand metrics, and final clearing prices remain completely transparent to the public.
How Does an Offer for Sale Work?
An OFS typically executes over trading days with structured windows:
- Institutional Window (Day 1): Non-retail participants (mutual funds, foreign portfolio investors, insurance companies, and HNIs) bid first, establishing early market depth and sentiment.
- Day 1 Cancellation Clause: If institutional demand fails to reach the floor price on Day 1, the seller holds the option to cancel the remainder of the offer entirely, bypassing the retail window.
- Retail Window (Day 2 / Later): Retail investors place orders through designated exchange windows.
- Floor Price: Sellers announce a baseline minimum price prior to opening; bids lower than this threshold are auto rejected. The floor price must be disclosed to the stock exchange by 5:00 PM on T-1 day (one day before the main T-day bidding opens), and the exchange informs the market immediately.
- Retail Discounts: Sellers may provide a discount to retail investors on the final allotment or bid price.
- Settlement: Trades settle on a trade-for-trade basis.
How to Apply for an Offer for Sale
Accessing the Platform: Log into your stockbroker’s trading platform, find the designated "OFS" window (often clubbed or adjacent to the IPO section).
Placing the Bid: Enter the desired quantity at or above the announced floor price. Keeping the aggregate bid value under ₹2 lakh ensures placement under the retail category.
Allotment and Refunds: Following the close of the bidding window, shares are allotted according to SEBI regulations. Unallotted application money is refunded automatically.
Who Is Considered a Retail Investor in an OFS?
Threshold Limit: An investor whose total cumulative bids across exchanges do not exceed ₹2 lakh is categorised as a retail investor.
Exceeding Limits: Bids exceeding ₹2 lakh shift the applicant automatically to the Non-Institutional Investor (NII) bracket.
Exclusive Quota & Perks: Retail investors enjoy exclusive access to a reserved quota (see the "SEBI Rules and Regulations Summary" section below for the exact percentage) and potential discount benefits.
Offer for Sale vs Initial Public Offering
| Feature | Offer for Sale (OFS) | Initial Public Offering (IPO) |
| Primary Purpose | Promoters/large holders sell existing stakes. | Unlisted companies raise fresh capital for business growth. |
| Fund Destination | Proceeds go directly to the selling shareholder. | Funds go into the company's treasury for operations/expansion. |
| Creation of Shares | No new shares created; existing shares change hands. | Brand new equity shares are created. |
| Duration | Completed rapidly over 1 to 2 trading days. | Extended multi-day book building and filing process. |
Why Do Promoters Use OFS?
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Speed & Efficiency: Rapid execution compared to cumbersome Follow-on Public Offers (FPOs).
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Regulatory Adherence: Simplifies compliance with SEBI’s 25% Minimum Public Shareholding (MPS) rule.
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Government Disinvestment: Serves as a transparent mechanism for state-owned enterprise stake sales.
Things to Check Before Bidding
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Rationale: Verify why the promoter is offloading shares (e.g., routine liquidity or compliance vs. negative triggers).
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Valuation: Compare the floor price to the prevailing market price.
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Cooling-Off Periods: Note that SEBI mandates specific cooling-off periods for consecutive promoter share sales depending on stock liquidity.
SEBI Rules and Regulations Summary
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Applicable to companies with a market cap of ₹1,000 crore and above (average daily market cap over the preceding six months).
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Minimum offer size must typically be ₹25 crore (exceptions apply for final tranche completion of MPS).
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10% retail reservation and 25% institutional allocation for mutual funds/insurance companies.
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Maximum allocation to a single non-institutional bidder cannot exceed 25% of the offer size.
Conclusion
An Offer for Sale gives promoters, large shareholders and the government a relatively quick way to sell shares in a listed company through the stock exchange. For retail investors, it provides a chance to buy shares in an already-listed company. In some cases, investors may also get shares at a discount. Knowing how the floor price works, what portion is reserved for retail investors and where the ₹2 lakh bid limit applies can make the OFS process much easier to understand before placing an order.
