The mechanism of the offer for sale was first introduced by India’s security market regulator SEBI in 2012, to make it easier for promoters of publicly traded companies to cut their holdings and comply with the minimum public shareholding norms by June 2013. This method was largely adopted by listed companies. Later on, the government started using this route to divest its shareholding in public sector enterprises. Here is the meaning of the offer for sale in the share market.
Meaning of offer for sale- OFS
What is offer for sale- An offer for sale is a simpler method wherein promoters in public companies can sell their shares and reduce their holdings in a transparent manner through the bidding platform for the exchange. Anyone including retail investors, companies, foreign Institutional Investors (FIIs), and Qualified Institutional Buyers (QIB) can bid on these shares.
Earlier only promoters could participate in an OFS. But now any shareholders holding more than 10% shares can offer their shares for sale. The best thing about an offer for sale is that usually shares are offered to investors at a 5% discount. However, discount in OFS is not a rule but it is at management discretion.
OFS is extremely popular among Public Sector Units (PSUs). It helps government meet its disinvestment targets. An OFS by PSUs is generally provided at a discount to retail investors.
The mechanism is available to 200 top companies in terms of market capitalization. In an OFS, a minimum of 25% of the shares offered is reserved for mutual funds and insurance companies. At any point, no single bidder other than these two institutional categories is allocated more than 25% of the size of the offering.
For Retail investors, a minimum of 10% of the offered size is reserved for retail investors. A seller can offer a discount price to the retail investors, either on the bid price or on the final allotment price. It is to be noted that the offer for sale window is open only for a single day and it is mandatory for the company to inform the stock exchange two banking days prior to the OFS about its intention.
How to bid in OFS?
In an offer for sale, a buyer has to provide a bid in order to acquire the share. Here the company sets a floor price. The buyer can not bid at a price lower than the floor price. Once the bids are placed, shares are allocated to the different buyers. There is no minimum limit to participate in an offer OFS. A buyer can bid for even a single share in the OFS process.
If the total bid value is not exceeding Rs. 2 Lakh then the individual investors can apply in the retail category and in other cases, the investors have to apply in HNI (High Net Worth Individual) category. To apply for OFS you simply have to login in Demat/trading a/c- Click on IPO/OFS- Select OFS – Apply For OFS. The client can place an offer for a sale order from 9:15 AM to 2:45 PM and in case the OFS order gets rejected from the exchange for any reason, the bid will not go through.
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Conclusion
To sum up, an offer for sale (OFS), is a simple and convenient way for promoters to divest their shareholdings in a publicly listed company, and if you are an investor, making an investment in an offer for sale is quite easy. So if the company has good potential, there is no reason to avoid participating in an OFS.
Frequently Asked Questions- FAQs
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An offer for sale is a simpler method wherein promoters in public companies can sell their shares and reduce their holdings in a transparent manner through the bidding platform for the exchange. Anyone including retail investors, companies, foreign Institutional Investors (FIIs), and Qualified Institutional Buyers (QIB) can bid on these shares.
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Is offer for sale is good or bad?
an offer for sale (OFS), is a simple and convenient way for promoters to divest their shareholdings in a publicly listed company, and if you are an investor, making an investment in an offer for sale is quite easy. So if the company has good potential, there is no reason to avoid participating in an OFS. To apply for OFS you simply have to login in Demat/trading a/c- Click on IPO/OFS- Select OFS – Apply For OFS.
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How can I buy OFS?
If the total bid value is not exceeding Rs. 2 Lakh then the individual investors can apply in the retail category and in other cases, the investors have to apply in HNI (High Net Worth Individual) category. To apply for OFS you simply have to login in Demat/trading a/c- Click on IPO/OFS- Select OFS – Apply For OFS. The client can place an offer for a sale order from 9:15 AM to 2:45 PM and in case the OFS order gets rejected from the exchange for any reason, the bid will not go through.
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Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author does not own any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.
Shares/Mutual Funds on my blog are provided for educational purposes only and do not constitute specific financial, trading, or investment advice. Please consult your financial adviser before taking any position in the stock/s mentioned.
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