What is OFS (Offer for Sale)? How Promoters Exit via OFS
An OFS, or Offer for Sale, is a mechanism through which existing shareholders of a listed company, typically promoters or large investors, sell their shares directly to the public through the stock exchange. No new shares are created. The company itself receives no money. It is purely a transfer of existing shares from the seller to new buyers.
ONGC's OFS in 2012 was one of India's earliest large-scale OFS transactions, where the Government of India sold part of its stake in the oil company to institutional and retail investors through the exchange platform. More recently, promoters of many NSE-listed companies have used the OFS route to reduce their stake and comply with SEBI's minimum public shareholding norms.
How is OFS different from IPO and FPO?
| Feature | IPO | FPO | OFS |
|---|---|---|---|
| Who sells | Company (new shares) | Company (new shares) | Existing shareholders |
| New shares issued | Yes | Yes | No |
| Company gets money | Yes | Yes | No |
| Available to | Listed on exchange after | Listed on exchange | Existing listed company |
| Duration | 3-5 days window | 3-5 days window | 1-2 days on exchange |
Who can conduct an OFS?
Only promoters and shareholders holding 10% or more of the company's shares are eligible to sell through the OFS mechanism. Smaller shareholders cannot use this route. The company must be in the top 200 by market cap, or must have been so at some point in the recent past, to use OFS.
Government divestment in PSU companies is frequently done through OFS. When the government wants to reduce its stake in companies like Coal India, NTPC, or SBI, it often uses OFS because it is faster and simpler than a full public offer.
How does an OFS work for retail investors?
OFS transactions happen directly on the NSE or BSE platform on a designated day. The seller announces a floor price below which they will not sell. Buyers bid at or above the floor price. Retail investors typically get a 5% discount on the final discovered price as an incentive to participate.
You apply through your broker on the day of the OFS. Unlike an IPO, there is no separate subscription window of multiple days. The entire transaction is completed in one or two trading sessions. You can participate in OFS transactions through Stockk at stockk.trade/products/ipo.
Investments in securities market are subject to market risks. This article is for educational purposes only.
Frequently Asked Questions
Why would a promoter sell shares through OFS rather than in the open market?
Selling large volumes in the open market would depress the share price significantly because the sudden supply overwhelms normal daily trading volume. OFS allows a large block of shares to be sold in an orderly, transparent process at a publicly discovered price, with SEBI oversight. It protects both the seller from getting a poor price and other shareholders from unexpected large-scale selling pressure.
Does an OFS mean the promoter has lost confidence in the company?
Not necessarily. Promoters sell through OFS for many reasons beyond confidence in the company. They may need personal liquidity, want to bring promoter holding down to comply with SEBI's maximum promoter holding norms, or are returning capital to their holding companies. A single OFS event is not sufficient evidence of lack of confidence. Look at whether the promoter continues to hold a significant stake after the OFS and whether they have committed to holding long-term.
What is the minimum amount needed to apply in an OFS?
For retail investors, the minimum application is one lot as defined in the OFS offer document. The floor price is announced before the OFS opens. You bid at the floor price or above. The 5% retail discount, if applicable, is applied to the final price at which institutional buyers subscribe, not the floor price.
Is the 5% discount in OFS guaranteed for retail investors?
The 5% discount for retail investors is offered at the discretion of the seller and is not mandated by regulation. Most government divestment OFS transactions offer this discount to encourage retail participation, but private promoter OFS transactions may or may not include it. Check the specific OFS offer document to confirm discount terms.
How quickly are OFS shares credited to my demat account?
OFS settlement typically follows the standard T+1 cycle, the same as regular equity trades. Shares are credited to your demat account the next trading day after the OFS transaction is completed. The debit of funds from your account also happens on T+1. This is faster than IPOs, which take approximately six trading days from close to listing.
Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice.
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