Guide to IPOs & OFS
Companies use internal accruals, debt, and equity to raise capital to expand. First-time equity market entrants launch an Initial Public Offering (IPO) to issue new shares or dilute their holdings. What if promoters want to cut their stakes post-IPO? They can efficiently sell shares in larger blocks with an Offer for Sale (OFS).
What is Offer for Sale(OFS)?
OFS is essential for investors buying shares this way. OFS makes selling shares on an exchange easy for promoters or key shareholders in public companies. OFS is now available to non-promoters with at least 10% company shares. OFS, founded by SEBI in 2012, helps promoters meet minimum shareholding requirements. OFS typically includes the 200 largest Indian exchange-listed companies by market capitalisation.
How to Apply for OFS?
Online trading makes OFS application easy. Investors can discover prices through bidding, similar to IPO book-building. Demand levels across price points determine the cut-off price, which investors can bid at or choose.
Investors can bid through a broker or the exchange if registered. The exchange’s website shows investor interest at different prices to gauge OFS share demand. Before bidding, investors can make informed decisions due to transparency.
How Many Bids Can Be Placed?
If they have enough money in their account, investors can submit multiple bids at different prices. Bids can be changed throughout the day, with the final allotment announced. In case of oversubscription, bids at the cut-off price are distributed proportionally. Unallocated funds are returned the same day.
Log into your trading account and go to corporate actions to apply for OFS shares. Displays all active OFS options. After selecting your preferred OFS, choose retail or non-retail categories, place an order at a chosen price, or choose a’market order’ to match the cut-off price.
Note: The Angel One app does not currently offer OFS services.
Key Points to Remember
- Bids below the floor price will not receive allocations.
- SEBI mandates that at least 25% of shares in an OFS are reserved for mutual funds and insurance companies.
- No single bidder (other than mutual funds and insurance companies) can receive more than 25% of the offered shares.
- OFS orders are accepted from 9:15 AM to 3 PM.
- Settlements are conducted on a trade-for-trade basis.
Conclusion
A simple, paperless OFS can be a good investment in large companies. OfS is appealing to retail investors looking to invest in established firms because of floor price discounts.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.