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A simple way of share sale via an exchange platform for companies that are listed is known as offer for sale. Promoters of an existing company or business sell their present shares to the public through this method. This is done without the issue of new shares. When a company issues shares in an initial public offering, and the funds are not enough, an offer for sale helps get the additional funds. This article explains the meaning of this method along with how to apply it. It will also illustrate its relation to the IPO, company laws, and the stock market, as well as highlight its benefits.
What is an offer for sale?
A less complicated approach known as an offer for sale allows promoters of publicly traded firms to transparently sell their shares and lower their shareholding using the Exchange’s bidding platform. In order to reach the required public shareholding of 25%, the OFS sector was previously restricted to the Promoters/Promoters’ Group Entities of listed Companies acting as “Sellers” by diluting or offloading their stake. Currently, non-promoters of qualifying businesses who own at least 10% of the company’s shares are included in the section.
It is the entirety or a portion of the current stakeholders’ investment in a specific company. These shares are up for bid by shareholders, companies, retail investors, foreign institutional investors, and qualified foreign buyers. There are various reservations on the total number of shares, and the maximum share distribution per bidder is 25% of the sale.
India’s securities market regulator, Sebi, originally implemented the system in 2012 to ease the reduction of publicly traded company promoter interests and compliance with minimum public shareholding requirements by June 2013. The mechanism is accessible to the top 200 corporations in terms of market capitalisation.
Offer for sale and the stock market
In India, the National Stock Exchange (NSE) is essential to the Offer for Sale (OFS) process. The procedure by which promoters of listed firms offer shares to investors directly through the NSE platform is referred to as an offer for sale NSE. It gives investors the opportunity to purchase shares at prices set by the market and allows promoters to sell their holdings in a transparent and controlled manner.
Given that it deals with the purchase and sale of shares, an offer for sale in stock market is an intimate association. On the other hand, an offer for sale enables investors to buy shares straight from a company’s promoters. This is in contrast to conventional stock market transactions where shares are exchanged between investors.
Through offer for sale, investors can obtain promoter shares directly, which enhances price discovery, market liquidity, and investor involvement in the stock market ecosystem. Additionally, regulators such as SEBI oversee offer for sale offerings on exchanges such as NSE in order to guarantee investor protection, fairness, and transparency. All of these help to build confidence in the stock market.
Offer for sale vs. IPO
OFS and IPO serve distinct goals for investors and companies.
Goal
The primary goal of an IPO is to raise new funds. When new shares are issued, the total number of outstanding shares rises, and current shareholders’ ownership is somewhat diluted. Conversely, OFS provides an avenue for current shareholders, including promoters or initial investors, to monetise their investments and divest whole or partially. No new shares are issued; existing shares are sold. This has no effect on the organisation’s ownership or equity structure.
Beneficiary
The company is the main recipient of the money raised via an initial public offering (OFS). The money can be used for expansion, debt reduction, or R&D, among other things. The selling shareholders get the sale money in an OFS. The business does not get any funding.
Regulatory guidelines
Strict regulations apply to initial public offerings (IPOs). Businesses must give detailed information about their operations, risks, finances, and future growth potential. Although OFS must comply with some regulations, these are often less onerous than those governing IPOs.
Value determination
A book-building procedure is typically used to establish the price of shares in an initial public offering. Within a designated price range, investors submit bids; the ultimate price is determined by supply and demand dynamics. The selling shareholders frequently determine the price in an OFS based on the state of the market and their intended valuation.
How to apply for an offer for sale?
The introduction of demat accounts and internet trading has made the OFS application process quite simple. In OFS, the corporation uses the bidding procedure to determine the price. Retail investors have the option to bid at the cut-off price or at a specific price. It is akin to the book-building procedure for an IPO. An OFS’s cut-off price is established following an assessment of investor demand at various price points.
As an individual investor, you can apply under the retail category for an offer for sale. No more than ₹ 2 lakh should be bid overall. If the amount is greater, it falls into the Non-Institutional Investor (NII) category rather than the retail category. To participate in OFS, you’ll need a trading account and a Demat account. The basic steps are:
- Open a Demat account: To store shares electronically, you must have a Demat account with a registered depository participant (DP).
- Verify eligibility: Use the standards established by the business and the relevant authorities to ascertain your eligibility to participate in OFS.
- Check for announcements: Use stock exchanges and financial news sources to stay informed about OFS announcements from listed firms.
- Place bids: When the OFS is released, use your broker or DP to place your bids. Indicate how many shares you are willing to bid for and how much you are willing to pay.
- Payment: Within the allotted time, pay the required amount for the bid, which includes the bid price and any relevant fees.
- Allotment: After the bidding procedure concludes, watch for the allotment outcomes. If your bid is successful, the allocated shares will be credited to your demat account.
- Post-allotment actions: After allocation, check the accuracy of your demat account statements and take any further instructions from your broker.
Conclusion
In the Indian capital markets, offer for sale in company law is a key mechanism that allows promoters to sell their shares and allows investors to buy shares directly from promoters. A clear understanding of OFS, how to apply it, and its advantages can help investors make wise choices and contribute to the capital market.
FAQs
Two reservations are made specifically for an offer to sell:
At least 10% of the shares that are being offered are reserved for individual buyers.
At least 25% of the offered shares are reserved for mutual funds and insurance firms.
Offer for Sale denotes the owners’ and promoters’ sale of their shares to raise more money for the business. Selling shares to outside investors is mostly done to raise funding for various uses, including expansion and growth.
As long as the prerequisites are met, namely, that their share capital must exceed 10%, all non-promoter shareholders are qualified to submit offers in OFS.
An OFS can be placed between 9.15 AM and 3 PM when the market is open. As per the norms set forth by the Securities Exchange Board of India (SEBI), mutual funds and insurance firms are entitled to receive a minimum of 25% of the shares offered.