What is OFS or Offer for Sale?

Recent example: Coal India offer on 30thJan 2015
Offer for Sale (OFS) is another form of share sale, very much similar to Follow-On Public Offer (FPO). OFS mechanism facilitates the promoters of an already listed company to sell or dilute their existing shareholdings through an exchange based bidding platform.

Except the promoters of the company, all market participants like individuals, HUF’s, mutual funds, FIIs, DIIs, corporates, QIBs, HUFs etc. can bid/participate in the OFS process or buy the shares. The promoters of the company can only participate as the sellers in the process.

OFS Process:

You need to compulsorily have a Demat &Trading account and permanent account number (PAN) to participate in an Offer for Sale.

No leverage is provided to the investors against the stock margin available in the trading accounts and thus, they are required to deposit 100% of the order value in cash to bid for it. Also, the funds allocated for OFS cannot be utilised for other investment purposes or against any other obligation of the trading member.

What differentiates Offer for Sale (OFS) process from IPOs/FPOs?

Physical Application: Unlike IPOs/FPOs, no physical application forms are issued to apply for shares in the OFS process. OFS process is completely platform based.

 

Time Period: While IPOs/FPOs remain open for 3-4 days, OFS gets over in a single trading day as the markets gets closed for trading at 3:30 p.m.

 

Price Band: Under IPOs/FPOs, there is a price band in which the investors need to bid for the shares or simply give their consent to buy the shares at the Cut-Off price. With OFS, there is a Floor Price. As the name suggests, it is the minimum price at which you can bid for the shares under OFS. You will not be able to place an order below the floor price as it will not be accepted by the system.

 

Charges: Investors are not required to pay any kind of charges over and above the Fixed Price in an IPO or FPO. But, the OFS process involve certain transaction charges including the brokerage, Securities Transaction Tax (STT) and other charges, which the investors normally pay when they buy shares of a company in the cash market.

 

Retail Discount:

To retail customers, OFS is generally offered at a discount, hence offers better rate.



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