What is Offer for Sale (OFS) in Stock Market?

Offer for Sale (OFS) is a mechanism that facilitates the promoters of an already listed company to sell or dilute their existing shareholdings. It mainly aims at increasing liquidity, offering transparency, and making share transactions more straightforward and convenient. It's particularly beneficial to retail investors.

Highlights of Offer for Sale (OFS)

• Introduced by SEBI: Securities and Exchange Board of India (SEBI) introduced OFS in 2012. .
• Frequency: A promoter group or a non-promoter holding 10% or more of share capital in a company can use the OFS mechanism.
• Transparency: Orders placed in OFS are anonymous, i.e., the identity of the buyers and sellers is not disclosed.

Detailed Explanation of Offer for Sale (OFS)

1. Institutional Investors

On the first day of the OFS, only institutional investors can participate. They have the option to place a bid at any price above the floor price. These investors can also place a bid without any upfront margin. However, if they modify or cancel their bids later, they need to pay a penalty.

2. Retail Investors

Retail investors can participate on the second day of the OFS. They can place their bids at or above a floor price. SEBI has also made a provision for a 10% reservation in OFS for retail investors.

3. Process of Participation

The bidding process for OFS takes place online through a trading terminal. It will be available during trading hours on the given date. The settlement will be on a trade-for-trade basis. It means that every transaction will require delivery and there will be no intra-day netting of trades.

Real Life Example of OFS

Let's consider Oil and Natural Gas Corporation Limited (ONGC), a public sector undertaking and a multinational crude oil and gas company in India.

If ONGC decides to sell some of its shares to the public, it can opt for the OFS mechanism to do so. ONGC will announce a floor price — the minimum price at which the shares will be sold. After the announcement, the shares can be bid for.

Investors bid for buying the shares at a price equal to or more than the floor price. Once all the bids are received, the shares are allocated to the investors.

Points to Remember

• It is compulsory for every company to have a minimum public shareholding of 25%
• Companies that fail to fulfil this criterion by a specified deadline are liable to face regulatory action.
• OFS is a faster and cost-effective way for such companies to increase public shareholding to meet regulatory requirements.

Conclusion

OFS is a simplified, transparent mechanism for selling shares of an already listed company. The process is straightforward, time-saving and cost-effective for the sellers.

Sources: 1. SEBI OFS guideline