OFS - Offer for Sale

Reviewed by Vishnava | Updated on Apr 02, 2024

What is an Offer for Sale?

A company may resort to an Offer for Sale (OFS) when it requires additional capital to meet its goals. In an OFS, promoters of a company will dilute their stake by selling their shares to retail investors, companies, Foreign Institutional Investors (FIIs) and Qualified Institutional Buyers (QIBs) on an exchange platform.

The company sets a floor price and the bidders cannot quote lesser than the floor price.
There is no minimum limit to participate in an OFS – a buyer can even bid for a single share in the bidding process.
However, the maximum limit for an individual investor is Rs. 2,00,000.
Bidders can only participate if they have a demat account and trading account.
OFS shares are generally allocated through Single clearing price mechanism or Multiple clearing price mechanism. In case of the former, all investors are allocated shares at the same price; but in case of the latter, shares are allocated to investors at a price priority basis.
Allocation of the shares remains subject to final price discovery.

It is available for only the Top 200 companies (based on market capitalisation) in the equity market.
The company has to inform the stock exchanges at least two days prior the OFS.
At least 25% of the shares must be reserved for mutual funds and insurance companies.
At least 10% reservation is made for retail buyers.

In FPO, companies can raise funds by issuing fresh shares or promoters can sell existing stakes. FPO stays open for three to ten days and requires considerable time for approval from SEBI.
In OFS, only existing shares are put on the block. Only promoters or shareholders holding more than 10% of the share capital in a company can come up with this. The entire retail amount is backed by 100% margins in the form of cash and cash equivalents – the process is quick and non-allotted or partially allotted funds are given back to the trading member on the same day.