What is an Offer for Sale of Shares?

An Offer for Sale (OFS) is a method used by companies to sell existing shares to the public.

An Offer for Sale (OFS) is a method used by companies to sell existing shares to the public. Unlike an Initial Public Offering (IPO) or Follow-on Public Offering (FPO), which involves issuing new shares to raise capital, an OFS is a sale of shares that are already in circulation. The shares are typically offered by existing shareholders such as promoters, institutional investors, or government entities. The sale takes place through a stock exchange, where investors can purchase the shares.

Key Features of OFS

1. Sale of Existing Shares: The key feature of an OFS is that it involves the sale of shares that have already been issued and are held by current shareholders. No new shares are created, meaning the company does not raise fresh capital. The funds from the sale go directly to the selling shareholders.
2. Public Listing: Shares offered in an OFS are listed on the stock exchange, and investors can bid for these shares during the offer period. The price is usually determined either by a fixed price or a price band, depending on the offering terms.
3. Liquidity for Existing Shareholders: The OFS provides liquidity to existing shareholders, allowing them to sell their shares in a listed company. This is particularly helpful for promoters, institutional investors, or government entities who wish to reduce their stake or exit the investment.
4. Pricing Mechanism: The price of shares in an OFS may be fixed or offered within a price band. Investors place bids within the price range, and shares are allocated based on demand and the final price decided after the offer period.

Purpose of OFS

An OFS is typically used for several purposes:

• Liquidity for Shareholders: It allows existing shareholders, including promoters and institutional investors, to sell part of their holdings and achieve liquidity.
• Regulatory Compliance: For instance, promoters may use OFS to reduce their stake in a company to comply with regulations that require them to maintain a certain level of shareholding.
• Government Disinvestment: Governments often use OFS as a tool to reduce their stake in state-owned enterprises, raising funds without issuing new shares.

Conclusion

An Offer for Sale of Shares is a cost-effective and efficient method for existing shareholders to divest part of their holdings. While it doesn’t raise new capital for the company, it offers liquidity and can increase market participation by allowing investors to buy shares directly from large stakeholders. It serves various purposes, including regulatory compliance and government disinvestment, making it a valuable tool in the financial markets.