A private firm raises money through an initial public offering (IPO). The corporation sells stock to outside investors to raise money for various purposes. Many investors does not know “What is Offer for Sale in IPO?”
This encompasses the company’s growth and expansion. The company’s financial woes, however, do not end with the IPO. A firm may require additional capital to achieve its objectives. This is when such businesses can choose to make an Offer for Sale (OFS).
What is Offer for Sale in IPO?
For listed firms, an offer for sale (OFS) is a simplified means of selling shares through the exchange platform. The procedure was initially implemented by India’s securities market regulator SEBI in 2012 to make it easier for promoters of publicly traded firms to reduce their ownership and meet the minimum public shareholding requirements by June 2013. The strategy was widely used by public and private listed firms to comply with the SEBI mandate. Later, the government began to use this method to sell its stake in public-sector companies.
How does OFS work?
In an OFS, a company’s promoters sell their shares on an exchange platform to dilute their interest. Anyone can bid on these shares, including regular investors, businesses, Foreign Institutional Investors (FIIs), and Qualified Institutional Buyers (QIBs).
In an OFS, how do you bid?
A buyer must submit a bid to purchase shares in an OFS. The firm establishes a ‘floor price.’ Buyers are not allowed to bid below the floor price. Following the placement of bids, shares are assigned to the various buyers. Participation in an OFS has no minimal requirements. In the OFS process, a buyer can bid for a single share.
What is the procedure for applying for an OFS?
Individual investors can apply to the OFS under the retail category. Your total bid value in this category should not exceed Rs 2 lakh rupees. Otherwise, it will be disqualified. To participate in an OFS, you’ll also need a Demat account and a trading account. You can still put bids through an appointed dealer if you are an offline investor.
Rules and Regulations of OFS
An OFS’s rules and regulations are as follows:
- Only the top 200 corporations in the stock market are eligible for this feature. The order is determined by market capitalization.
- Non-promoter shareholders owning more than 10% of the company’s stock are also entitled to sell shares through an OFS.
- At least two days before the OFS, the corporation must notify the stock exchanges.
- According to SEBI, at least 25% of an OFS’s shares must be allocated for mutual funds and insurance firms.
- In addition, a 10% reserve is established for retail customers.
Differences between an IPO and an OFS
No actual form or form-structures are envisaged to apply for shares in OFS, unlike IPOs/FPOs. Similarly, while IPO/FPO issues are open for three to four days, an OFS is only open for one trading day.
In an OFS, the organisation must illuminate the trade two working days (bank) before the OFS takes place. Only investors with a 10% or greater shareholding in the company are eligible for an OFS. The OFS takes place during the trading day. Common asset and insurance agency purchases account for 25% of the shares sold through an OFS.
In an IPO, on the other hand, after the financier has completed its task, the next stage is endorsing, which is followed by registration with the SEBI and the creation of a plan. Retail speculators receive 35% of the shares distributed.
An IPO or an FPO is used by a company to raise funds for its development and expansion needs. In this case, the money is transferred from the financial experts to the organisation in exchange for stock ownership. The purpose of an OFS is to give investors who own more than 10% of the company a straightforward way to sell their shares.
An OFS allows promoters to sell their shares in a publicly traded firm in a straightforward and quick manner. Buying shares in an OFS is also simple if you are an investor. There is no reason to avoid engaging in an OFS if the firm has good potential.