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With the recent IPO frenzy, terms such as OFS, FPO, etc. are trending topics. OFS refers to an Offer for Sale. At times, the company may require additional funding. In such cases, the company either opts for an Offer for Sale or a Follow-on Public Offer (FPO).
Offer for Sale primarily involves the attenuation of the promoter holding of a company by selling the shares on an exchange platform. The buyers may be retail investors, foreign institutional investors, companies, qualified institutional buyers, etc.
OFS was introduced by SEBI in 2012 to aid promoters of publicly listed companies to reduce their holdings to comply with newly introduced regulations. The method is now widely used by listed entities – private as well as state-owned.
In an OFS, the company offers the shares at a minimum floor price. The buyer must apply for shares at a price equal to or more than the floor price. There is no restriction on the minimum number of shares to be applied for. Shares are allotted based on the bids placed by various buyers.
Having understood the offer for sale meaning, let’s discuss the pros and cons of OFS.
Typically, there are two methods of allotment –
Price priority is applicable when allotment is done on a multiple clearing price mechanism. The highest price bidder gets the first preference for allotment. Clearing price is the lowest price of allotment. Every bid above the clearing price is allotted securities.
Except the seller, all market participants are allowed to participate in OFS. This includes QIB, FIIs, mutual funds, individuals, HUFs, NRIs, etc.
OFS application may be made through existing trading members of the exchange on which the OFS is listed. The investors are required to submit the bid details such as the bid price and bid quantity with the trading members.
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