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What is OFS in Share Market? | How can I Invest in Offer for Sale?

What is offer for sale

What is Offer for Sale(OFS)?

Offer for Sale(OFS) is the sale of existing shares of the company held by promoters or major investors like venture capital funds etc. to the public.
A sale can be done through primary market IPO i.e. Initial Public Offering or through a secondary market in the case of listed companies.

Let’s understand Offer for Sale with easy way, OFS is an investment opportunity for all types of investors to own shares of a listed company, where a promoter looks to sell off part of their investment.
This is conducted on a specific date, through a process that is separate from the normal market trading process.
Let’s look at the key points of OFS.

  • OFS facility is based on a bidding platform provided by the Exchange not like normal market trading.
  • All orders placed must be above the base price known as the floor price set up by the organization.
  • Investors can bid for even a single share and can also place multiple order bids based on investment.
  • All shares allotted to investors through an OFS are settled on T+1, where T is the day of issue.

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Eligibility for OFS

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OFS can be made by promoter group entities of such companies that satisfy the criteria as set by SEBI or Exchanges from time to time for selling shares through this scheme.
Therefore, only if such promoter group entity announces OFS of shares only then such stock shall be available under this scheme.

Also Read What is a Rights Issue of Shares? | Rights and Bonus Issue | Example | Eligibility | Types

OFS Bidding Process, Category and Timing

A buyer has to provide a bid in order to acquire the shares under this scheme.
The Buyer cannot bid at a price below the floor price which is set by the company.
Shares are allocated to the different buyers after the bids are placed. There is no min limit to participate in this scheme.

If the total bid value is not exceeding INR 2,00,000/- then the investor can apply in Retail Category (RI).
In other cases, the investor has to apply in the HNI i.e. High Net Individuals Category.

The list of categories are mentioned below:

  1. Mutual Funds
  2. Insurance Companies
  3. Foreign Portfolio Investor (FPIs)
  4. Qualified institutional Buyers (QIBs)
  5. Trusts, HUFs, Body Corporates, Proprietary
  6. Retail Investors
  7. Non Resident Indians (NRIs)
Client CategoryOFS Category
HUFNon-Institutional Investor (NII)
IndividualRetail Investor(RI) or Non-Institutional Investor
NRINon-Institutional Investor
CorporateNon-Institutional Investor
PartnershipRetail Investor or Non-Institutional Investor

The duration of the offer for sale shall be for a maximum of one trading day (9.15 a.m. to 3.30 p.m. subject to a minimum period of one hour and placing of orders will be allowed during this bidding period as specified by the Seller or Exchanges for a particular stock.
However, the Trading platform will specify a cut-off time up to which the bids will be accepted and this will be before the end of the bidding period.
You will be unable to place or modify the bid after the specified cut-off time.

Also Read What is Bonus Share? | Record & Ex-Bonus Date | Bonus vs Rights

How to Buy “Offer For Sale Shares”?

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The customer would need a trading and Demat account to invest in the OFS.

Online Process

Time needed: 5 minutes.

Customers can log in to their trading accounts and place bids by following the below-mentioned steps:

  1. Login

    To apply, you can log in to your trading account.

  2. IPO/OFS

    Go to the IPO/OF section.

  3. Select OFS

    Customers can view all the stocks undergoing an OFS and verify the category i.e. Retail or Non-Retail Investor.

  4. Apply

    A Retail or Non-Retail Investor can either put bids at a specific price or at the cut-off price.
    The process is similar to that of an IPO i.e. Initial Public Offering book building process.

Offline Process

The customers can place their bids with the help of their assigned dealer or Relationship manager.
However, no forms are issued to apply for bids in OFS schemes like IPOs/FPOs.

Also Read What is SME IPO? | SME IPO Vs Regular IPO | How to Invest in SME IPO? | Sell SME IPO Shares |

Guidelines on Offer For Sale of Shares

  1. OFS is available only to the top 200 companies in the share market. Earlier, it was only available to the top 100 companies. Actually, this ranking is based on market capitalization.
  2. Non-promoter shareholders with more than 10 percentage of share capital are also eligible to offer shares through this scheme.
  3. The company has to inform the stock exchanges at minimum two working days before the OFS.
  4. As per the SEBI i.e. Securities and Exchange Board of India guideline, that at least 25 percentage of shares in an OFS must be reserved for MF i.e. Mutual Fund and Insurance companies.
  5. In extra, a 10 percentage reservation is made for retail buyers. However, Retail investors can also bid in both the retail and general categories.
  6. Modification of orders is not allowed.
  7. In case OFS order get rejected from the exchange for any purpose, order/bid will not go through.
  8. No allocation will be made in case of bid is below floor price.

Also Read How NFO Work? What is NFO in Mutual Fund? | NFO vs IPO | FAQs

OFS Discount for Retail Investors

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Discount to retail investors may be offered as follows:

Multiple Clearing priceRI i.e. Retail investors may be allocated shares at a discount to the cut-off price determined in the retail category, irrespective of the bid price entered by them.
RI may be allocated shares at a discount to the bid price entered by them.
Single clearing priceRI shall be allocated shares at a discount to cut off prices determined in the retail category.

Also Read Book Built Issue IPO – Process | Steps | Types | Pros & Cons

Retail Investors Haven’t Received the OFS Allotment

Here are the following scenarios under which Retail investor bids will be rejected and not considered for allocation.

Investor bidding
Type
Kind of bidding doneResult
Investors bids in
both RI & NII
Cumulative bid value across
Exchanges greater than Rs.
2 Lacs.
Bids in the Retail category will be rejected and only
Non Retail bids will be eligible for allocation
Investors bids in
both RI & NII
Cumulative bid value across
Exchanges less than Rs. 2
Lacs.
Both Retail and Non Retail bids will be considered
for allocation and Retail bids will be eligible for
reservation and/or discount.
Investors bids in
only RI
Cumulative bid value across
Exchanges greater than Rs.
2 Lacs.
All Retail bids will be rejected and not considered
for allocation.
Investors bids in
only RI
Cumulative bid value across
Exchanges less than Rs. 2
Lacs.
All Retail bids will be considered for allocation.
Retail bids will be eligible for reservation and/or
discount.
Source – BSE

Also Read Price Band in IPO – How is the Price Band of an IPO Decided?

OFS Share Allotment Process and Status

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The DSE i.e. Designated Stock Exchange will allow the shares based on the above allocation formula i.e. Multiple
Clearing Price or Single Clearing Price as specified by the Sellers.
The allocated shares will be credited to the investor a/c in a manner like to the existing equity market
transactions. The shares will be credited to the investor a/c on T+1, where T is the day of issue. 

The Stock Exchange will share the allotment report with the Investor at the end of the day after the issue
closure as per the timings in the Exchange notice.

Also Read Face Value in IPO – How to Calculate Face Value or Nominal or Par value?

Offer For Sale vs IPO

  1. An unlisted company issues new shares in IPO and goes public.
    But OFS, is for diluting promoter stake in a top 200 listed companies.
    In an FPO i.e. Follow On Public Offer, the company is listed and it issues shares to new or may be already present shareholders.
    This process happens after the IPO route has been taken.
  2. IPO(s) is a price band in which the investors need to order/bid for the shares or simply give their consent to purchase the shares at the cut off price.
    At the OFS, it is the minimum price at which you can bid for the shares.
    This minimum price is known as “Floor Price”. The Investor will unable to place an order below the floor price as it will be unaccepted by the system.
  3. Under the IPO, raise funds are long process because it involves issuing a prospectus & then a wait for getting IPO applications & allotting shares to investors.
    An OFS can be completed in only one trading session.
  4. Unlike IPOs, There is no physical application forms are needed to apply for shares in the OFS.
  5. While IPO issues remain open for 3-4 days, an OFS gets over in a one trading day.
  6. Investor(s) is not required to pay any fee in IPO. However, purchasing in OFS involves payment of brokerage, securities transaction tax, etc. that investors pay when they purchase shares in the cash market.

Advantages

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  • Retail investors are normally offered the shares at discount price on the floor price.
    Such discount is approx. of 5% in these offerings.
  • The entire process of OFS is a paperless process.
    That means, it is all system drive. Therefore, it has very less paper work and less time consuming.

Also Read Price Band in IPO – How is the Price Band of an IPO Decided?

Disadvantages

  • In case of IPO/FPO, the minimum reservation of share allocation to retail investors is 35 percentage which is not the case with OFS. The investor gets only 10 percentage reservations for retail investors in the OFS.
  • The bidding window is open for one day under this scheme compared to 3-10 days in case of IPO/FPO.
    Companies are required to inform the Stock Exchange within two bank working days prior to the offer.
    Therefore, It is very important as an investor to be up to date to avoid such opportunities.

Also Read What is Bonus Share? | Record & Ex-Bonus Date | Bonus vs Rights | Which Company will Give Bonus Share in 2021

FAQs

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What is the period of issue and duration during which I can place my order?

The issue period shall not exceed one trading day. You can place your order(s) as per the timelines defined by your broker.

What are the charges applicable for an Offer For Sale?

There are no extra charges to place your order under Offer For Sale.
Transaction charges, STT & other charges which are currently levied under the equity segment would be applicable for the Offer For Sale segment.

Can I also trade under the usual Equity segment in stocks that are eligible for OFS?

you can continue trading under the usual Equity segment for stocks available under OFS on the day of such an offer.

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