Offer For Sale (OFS): Simplifying Share Sale through Exchange Platform

Offer For Sale (OFS): Simplifying Share Sale through Exchange Platform

• Offer for Sale (OFS) is a simplified method of share sale through the exchange platform for listed companies.
• It was introduced by SEBI in 2012 to help promoters of listed firms dilute their stake and comply with minimum public shareholding norms.
• OFS is used when existing shares are put on sale, unlike a Follow-On Public Offering (FPO) which allows for the issuance of fresh shares.
• The government also utilizes the OFS route to divest its shareholding in public sector enterprises.
• The mechanism is available to the top 200 companies in terms of market capitalization.
• In an OFS, at least 25% of the shares offered are reserved for mutual funds and insurance companies, and no single bidder other than these categories can be allocated more than 25% of the offering size.
• A minimum of 10% of the offer size is reserved for retail investors, who may receive a discount on the bid or final allotment price.
• Companies must inform the stock exchanges about their intention to conduct an OFS at least two banking days prior to the sale.
• The OFS process allows various types of investors, including foreign institutional investors and retail investors, to participate in the bidding.
• OFS provides a streamlined and inclusive approach to share sales, ensuring transparency and compliance with regulatory requirements.

The Union government recently announced its plan to sell up to a 3% stake in state-owned Coal India through an Offer For Sale (OFS). This method of share sale, introduced by the Securities and Exchange Board of India (SEBI) in 2012, provides a simpler way for listed companies to sell their shares on the exchange platform. In this article, we will explore the concept of Offer For Sale (OFS) in detail, its features, and its significance in the Indian financial market.

OFS was introduced by SEBI as a method to facilitate the dilution of promoters' stakes in listed companies and to ensure compliance with the minimum public shareholding norms. It provided a streamlined approach for promoters to sell their existing shares on the exchange platform. Over time, both state-run and private listed companies embraced the OFS mechanism to adhere to SEBI's requirements.

The government also recognized the benefits of the OFS route and started utilizing it as a means to divest its shareholding in public sector enterprises. This method offers several distinct features that set it apart from other methods of share sale, such as a Follow-On Public Offering (FPO).

Unlike an FPO, where companies can raise funds by issuing fresh shares or promoters can sell their existing stakes, the OFS mechanism is used exclusively when existing shares are put on the block. It allows promoters or shareholders holding more than 10% of the share capital in a company to offer their shares for sale through the OFS process.

The OFS mechanism is available for the top 200 companies in terms of market capitalization. It provides certain provisions to ensure a fair and balanced sale process. For instance, in an OFS, a minimum of 25% of the shares offered are reserved for mutual funds (MFs) and insurance companies. Additionally, no single bidder other than these two institutional categories can be allocated more than 25% of the total shares on offer.

Furthermore, a minimum of 10% of the offer size is reserved for retail investors, allowing them to participate in the share sale process. The company conducting the OFS can offer a discount to retail investors either on the bid price or on the final allotment price, providing an incentive for their participation.

To initiate an OFS, it is mandatory for the company to inform the stock exchanges about its intention at least two banking days prior to the scheduled sale. This ensures transparency and allows interested parties to prepare for the bidding process.

One of the significant advantages of the OFS mechanism is its inclusiveness. Anyone can bid for the shares on offer, including foreign institutional investors, retail investors, and even other companies. This broadens the scope of participation and encourages a diverse investor base.

In conclusion, Offer For Sale (OFS) has emerged as a simplified method of share sale through the exchange platform. It enables listed companies, promoters, and the government to divest their shares while complying with regulatory norms. The OFS mechanism offers features that promote fairness and inclusiveness, ensuring a level playing field for different categories of investors. As the Indian financial market continues to evolve, the OFS route provides an efficient and transparent way to unlock value and facilitate share sales.

Thank You