To raise additional funds, companies issue shares in Initial Public Offerings. If the shares do not suffice and there is an urgent need for additional funds, companies may opt for Offer for sale (OFS).
Promoters can reduce their stakes in publicly traded companies with an OFS. Promoters have the option to sell their shares on an exchange platform in order to raise funds. This is an easier and quicker way to raise capital. It can be a portion or all of a company's shareholding by existing stakeholders. These shares can be bid upon by shareholders, foreign institutional investors, companies, qualified international buyers, and retail investors.
There are certain restrictions on the total number of shares and the maximum share allocation for bidders.
1. Retail investors are entitled to a minimum of 10% of the shares offered.
2. For mutual funds and insurance companies, a minimum of 25% of the shares are reserved.
Promoters are able to sell their shares in OFS directly on an exchange, rather than waiting for a public offering. Only shareholders who own more than 10% of a company's shares can benefit from an Offer for Sale.
This strategy is used by government companies to reduce their holdings through an open channel via an exchange. The company does not receive the money. Instead, the money is transferred to the promoter in exchange for the surrender of shares.
If you are an individual investor and wish to apply for Offers for Sale, please go to the retail category. The bid value must not exceed Rs. 2 lakh. If it exceeds this amount, it will not be considered retail but instead belongs to the Non-Institutional Investor category (NII). To participate in OFS, you will need a Demat account as well as a trading account. To participate in OFS, you will need a Demat account and a trading account.
Rules and Regulations in OFS
Only 200 companies can apply for OFS in the share market. Market capitalisation is the basis of rank.
Retail buyers have 10% of the shares
An OFS shares are 25 to 25% reserved for mutual funds or insurance companies.
- Shareholders who have more than 10% capital can also offer shares through OFS such as Mutual funds, UTI Banks, Financial Institutions, Institutional Investors, and others.
- The OFS must be notified at least two days in advance by the company.
- Settlement is done on a trade for trade basis.
To get started with OFS, open your Demat account