What is Offer for Sale (OFS) in IPO

Companies need funds for various things. But at the same time, the options to raise the funds are limited. They can either go for a new IPO or seek a loan. But in either case, there is a dilution, which at times may not be the right choice.

However, if the company has its shares listed on the stock exchange, then there is another option: to offer them for sale. Under this, the funds are raised through the existing shareholders or promoters who want to sell their shares to reduce their holding or meet regulatory requirements. 

But the question is what is offer for sale exactly? Well, if you are an investor planning to enter the market, then this is important information that you must hold. So, let us explore all the details over here. 

What is Offer for Sale (OFS)?

The offer for sale meaning is quite simple. It was started by SEBI in 2012. This process aims to allow the companies to raise funds with the help of their existing shareholders. Under this, the promoter and shareholders with 10% or more shareholding sell their shares to the public. This is done through NSE or BSE, where the stocks are listed. 

This makes the process of selling shares simple, quick, and transparent. It does not bring any new funds to the company because the money goes directly to the sellers. 

The key features of the same that you must know are as follows:

• Introduced by SEBI in 2012 for transparent selling

• Used by promoters or large shareholders to sell shares

• Applicable to those who hold 10% or more only

• Conducted through stock exchanges like NSE and BSE

• No new funds raised for the company

• Money goes directly to selling shareholders

• Fast process, completed within a single trading day

• At least 25% reserved for retail investors

• No need for a prospectus or lengthy approvals

• Helps meet public shareholding norms easily

• Open to both institutional and retail investors

Overall, an offer for sale is a reliable way to sell large shares without affecting company operations.

How Does Offer for Sale Work?

Many people ask, what is offer for sale in IPO, and how it works. An offer for sale (OFS) is different from an IPO. In an IPO, the company issues new shares to raise fresh funds. But in an offer for sale, existing shareholders, like promoters, sell their shares to the public. Here is how it works:

1. Announcement: The company announces the OFS date, floor price, and number of shares for sale.

2. Eligibility: Only the top 200 listed companies (by market cap) usually use OFS for selling shares.

3. Reservation: At least 25% of shares are reserved for retail investors to ensure fair participation.

4. Bidding: Investors place their bids through their broker on the stock exchange platform on the offer day.

5. Price Discovery: Shares are allotted based on bids placed, starting from the highest bid price until all shares are sold.

6. Settlement: The process completes within one trading day, and shares are credited to investor demat accounts quickly.

7. Funds Transfer: The money goes directly to the selling shareholders, not the company.

This process is simple, fast, and fully regulated by SEBI to maintain transparency for all investors.

Who Can Participate in an Offer for Sale (OFS)?

An offer for sale (OFS) is designed to ensure broad participation from different types of investors while keeping the process simple and fair. Whether you are a retail investor, an institutional fund, or a promoter looking to reduce your stake, OFS has clear rules for who can buy or sell shares through this method.

On the Buyer Side

• Retail investors: Individuals placing bids up to ?2 lakh.

• Institutional investors: Mutual funds, insurance companies, pension funds, and other Qualified Institutional Buyers (QIBs).

• Foreign Portfolio Investors (FPIs) and Foreign Institutional Investors (FIIs): As allowed by SEBI guidelines.

• Non-institutional investors: Corporates, Hindu Undivided Families (HUFs), NRIs, and others with trading and demat accounts.

• Cash market members: All members registered with the stock exchange can place bids through the bidding platform.

On the Seller Side

• Promoters and promoter group entities: Usually selling to reduce their holding as per SEBI norms.

• Non-promoter shareholders: Holding at least 10% of the company’s share capital in the top 200 companies by market capitalization.

Eligible Buyers and Sellers in Offer for Sale (OFS)

The offer for sale (OFS) mechanism was introduced to help promoters reduce their holding in listed companies in a simple and transparent way. The stock exchange provides a separate window for these transactions. Let us understand who can buy and sell in an OFS.

Eligible Buyers for OFS

• All investors registered with brokers of the stock exchanges can participate, except promoters or promoter group entities.

• If a non-promoter shareholder is selling shares through OFS, then promoters or promoter group entities can also buy shares, as long as they follow SEBI regulations.

• Eligible trading members of the capital market segment can bid on their own account in the OFS.

• Any other buyers are allowed by SEBI or the exchange from time to time.

Eligible Sellers for OFS

• Promoters or promoter group entities that need to reduce their holding to meet minimum public shareholding norms under SEBI rules.

• Companies with a market capitalization of ?1,000 crore or above, calculated as the average daily market cap for the six months before the OFS month.

• Non-promoter shareholders holding at least a 10% stake can also sell through OFS. In such cases, promoters can buy shares if they follow SEBI regulations.

• Promoters can also sell shares to employees within two weeks of the OFS transaction. Such sales are treated as part of the same OFS.

Overall, these rules ensure that OFS remains fair, transparent, and within SEBI guidelines.

How to Buy Shares in an Offer for Sale (OFS)

An offer for sale (OFS) allows you to buy shares directly from promoters or large shareholders through your trading account. The process is simple, but knowing each step ensures you do not miss out on opportunities. Here is how you can buy shares through an OFS smoothly:

Step 1: Check Your Accounts

Make sure you have an active demat and trading account. A demat account is needed as shares from OFS are credited electronically.

Step 2: Log In to Your Trading Platform

Open your broker’s website or app. Most brokers have an “IPO/OFS” or “Corporate Actions” section for such offers.

Step 3: Go to the OFS Section

Navigate to “OFS” under the investments or corporate actions menu. Here, you will find all active OFS offers.

Step 4: Select the Desired OFS

Click on the OFS you want to invest in. Read important details like floor price, offer size, bidding timings, and cut-off price.

Step 5: Place Your Bid

Now, you must select your category of investor as follows:

• Retail investor: Bid up to ?2 lakh

• Non-retail/HNI: Bid above ?2 lakh

• Employee: If eligible, bid up to ?5 lakh

Now, enter the number of shares and your bid price (at or above the floor price). You can select “market order” to bid at the final cut-off price.

Step 6: Ensure Funds Availability

Keep enough funds in your trading account. The total bid amount will be blocked until allotment.

Step 7: Submit Your Bid

Once submitted, bids cannot be modified or cancelled. Bidding timings are usually from 9:15 am to 2:45 pm (BSE cut-off is 2:30 pm; NSE cut-off is 3:30 pm).

Step 8: Check Allotment and Settlement

If shares are allotted, funds are debited, and shares are credited to your demat account on T+1 day. If not, blocked funds are released the same day.

The Bidding Process in an Offer for Sale (OFS)

Participating in an offer for sale (OFS) involves a clear and structured bidding process. Knowing these steps helps investors place their bids confidently and avoid mistakes. Here is how the bidding process works from start to finish:

1. Announcement and Floor Price Setting

The company or major shareholder announces the OFS at least two trading days before the offer date. Along with the announcement, they set a floor price, which is the minimum price at which investors can place their bids.

2. Bidding Window

The bidding takes place online through the stock exchange platform and usually lasts for one trading day. It opens at 9:15 am and closes at 2:45 pm, with cut-off times of 3:30 pm for NSE and 2:30 pm for BSE.

3. Placing Bids

Investors log in to their trading account and navigate to the OFS section. They select the desired OFS, enter the number of shares, and quote their bid price, which must be at or above the floor price. Retail investors can bid up to ?2 lakh, while bids above this amount are treated as non-retail (HNI) bids. Multiple bids at different prices are allowed within the given range.

4. Bid Submission and Margin

When bids are placed, 100% of the bid amount is blocked in the investor’s account as margin. Once submitted, bids usually cannot be modified or cancelled.

5. Price Discovery and Allocation

After the bidding window closes, the company reviews all bids and decides the cut-off price based on demand and supply. This is the lowest price at which all shares on offer can be sold. Bids at or above the cut-off price are considered for allocation, and shares are allotted based on price priority. If bids are oversubscribed at a particular price, allocation is done proportionately. Bids below the floor price are automatically rejected.

6. Settlement

If shares are allotted, funds are debited, and shares are credited to the investor’s demat account on T+1 day. If shares are not allotted, the blocked funds are released on the same day.

The Allocation Process in an Offer for Sale (OFS)

The allocation process in an offer for sale (OFS) ensures that shares are distributed fairly among investors based on their bids. There are two methods used for allocation: Single Clearing Price and Multiple Clearing Price. Here is how each works.

Single Clearing Price Method

In this method, all investors receive shares at one uniform price.

• After the bidding window closes, all bids are collected.

• The exchange determines a single clearing price, which is the lowest price at which all shares on offer can be sold.

• Investors who have bid at or above this clearing price are eligible for allotment.

• Shares are then allotted proportionately among all these successful bidders at the same price, regardless of their original bid price.

• Shares are credited to investors’ demat accounts on T+1 day, and any excess blocked funds are released the same day.

Multiple Clearing Price Method

In this method, investors get shares at the price they bid.

• All bids are collected and arranged from highest to lowest price.

• Allocation starts with the highest bid price, and shares are distributed to these bidders first.

• The process continues down the bid prices until all shares are sold.

• If there are more bids at a particular price than the remaining shares, allocation is done proportionately at that price.

• Each investor receives shares at their respective bid price, and shares are credited on T+1 day with blocked funds for unallocated bids released the same day.

The company or seller decides and announces the method before the OFS opens. Single clearing price offers uniformity, while multiple clearing prices benefit investors who bid higher amounts.

Offer for Sale Example

Let us understand what is offer for sale example, with a simple case.

Company XYZ announces an offer for sale (OFS) with a minimum share price (floor price) of ?150.

Mr. Roy, a retail investor, places a bid for 1,000 shares at ?150. Roy and Company, an institutional investor, places a bid for 1,500 shares at ?150.

Total Supply for Mr. Roy:

Limit Price Number of Shares = ?150 X 1,000 = ?150,000

Total Supply for Roy and Company:

Limit Price Number of Shares = ?150 X 1,500 = ?225,000

Mr. Roy’s total bid amount is ?1.5 lakh, which is within the retail investor limit of up to ?2 lakh, so his bid is accepted under the retail category.

Roy and Company’s bid amount is ?2.25 lakh, which exceeds ?2 lakh, so it is considered under the institutional investor category and processed accordingly.

This offer for sale example explains how bids are categorised based on bid amount and investor type to ensure proper allocation as per SEBI regulations.

Benefits of Offer for Sale (OFS)

An offer for sale (OFS) not only helps companies meet regulatory needs but also provides investors with unique opportunities. Understanding these benefits will help you see why OFS is widely used in the market today.

Benefits to the Company

• Regulatory Compliance: Companies can easily meet SEBI’s minimum public shareholding requirement of 25% without complex procedures.

• Faster Process: The OFS method is quick, usually completed within a single trading day, unlike other fundraising or stake dilution options.

• Cost-Effective: There is no need for a detailed prospectus, saving legal, compliance, and administrative costs.

• Improves Market Perception: Transparent reduction in promoter holding builds investor trust and enhances the company’s image in the market.

Benefits to Investors

• Direct Buying Opportunity: Investors can buy shares directly from promoters at competitive prices without secondary market fluctuations.

• Discount Advantage: Retail investors often receive a discount on the floor price, especially in government or PSU OFS offers, making it attractive.

• Transparent Process: Bidding and allocation take place on the exchange platform with clear rules, ensuring fairness and clarity.

• Fair Price Discovery: Investors benefit from market-driven price discovery, helping them buy shares at a justified value.

Difference Between Fresh Issue and Offer for Sale (OFS)

When companies raise funds or promoters sell their stake, they choose between a fresh issue vs offer for sale (OFS). Understanding the difference between these two methods helps investors know their impact on the company and shareholding structure.

Conclusion

An offer for sale (OFS) is a smart and transparent way for promoters or large shareholders to sell their shares without affecting the company’s capital structure. It helps companies meet SEBI’s public shareholding norms while giving investors a chance to buy shares directly at market-driven prices.

If you are planning to invest in OFS offers, using tools like Rupeezy can make your decisions easier. Rupeezy helps you track upcoming OFS opportunities, compare prices, and place your bids confidently to build a strong investment portfolio.

FAQs

Q1. Does OFS impact the share price?

OFS can impact the share price temporarily due to increased supply, but its effect usually stabilises after the sale ends.

Q2. Are OFS offers only for large companies?

Generally, OFS is used by the top 200 listed companies with a market capitalisation above ?1,000 crore as per SEBI rules.

Q3. Can bids be cancelled or modified in OFS?

No, once you place your bid in an OFS, it cannot be cancelled or modified, so place your bid carefully.

Q4. Do retail investors get any benefits in OFS?

Yes, retail investors often get a discount on the floor price, especially in PSU OFS offers, making it attractive for them.

Q5. How fast is the settlement in OFS?

Settlement is quick. If shares are allotted, they are credited to your demat account on T+1 day, and blocked funds are released the same day if not allotted.