Offer for Sale (OFS): Meaning, Process and How It Differs from an IPO

What is an Offer for Sale (OFS)?

Offer for Sale, commonly known as OFS, is a mechanism that allows promoters of a listed company to sell their shares to the public through the stock exchange.

The OFS route was introduced by SEBI (Securities and Exchange Board of India) in 2012, mainly to make it easier for promoters to meet the minimum public shareholding norms (25% for listed companies) and to encourage transparent and efficient share sale practices.

Offer for Sale Meaning in Simple Terms:

In simple words, an OFS is like an auction where existing shareholders (usually promoters or large shareholders) sell part of their holdings to the public via the stock exchange.

How Does an OFS Work?

Unlike an IPO, where new shares are created and sold to raise fresh capital, an OFS involves the sale of existing shares only. Here’s how it works step by step:

• Announcement: The company announces the OFS with details like the number of shares on sale, floor price, date, and bidding window.

• Eligibility: Only the top 200 companies by market capitalization can use OFS.

• Bidding: Investors bid for shares during market hours, usually for one trading day.

• Allotment: Shares are allotted to bidders based on price and quantity bids, starting from the highest bid.

• Settlement: Shares are transferred to successful bidders and money goes to the selling shareholders.

Who Can Participate in an OFS?

Retail Investors: 10% of the OFS issue size is reserved for retail investors.

Institutional Investors: Qualified Institutional Buyers (QIBs) and Non-Institutional Investors (NIIs) can also participate.

Existing Shareholders: Sometimes companies give preference to existing shareholders.

Retail investors can place bids through their broker, just like buying or selling regular shares.

When is an OFS Used?

The most common reasons companies use an OFS include:

• Promoters diluting stake to comply with SEBI’s minimum public shareholding norms.

• Government selling stakes in Public Sector Undertakings (PSUs).

• Private companies letting early investors exit partially.

Key Features of Offer for Sale

• No New Shares: Unlike an IPO, OFS doesn’t raise new capital for the company.

• Limited to Top Companies: Only top 200 listed companies can use OFS.

• Short Duration: OFS typically stays open for just one trading day.

• Transparent Pricing: Floor price is declared upfront.

• Direct Stock Exchange Route: Bids are placed through exchanges, ensuring transparency.

OFS vs IPO: Which is Better for Investors?

Whether IPO vs OFS is better depends on your investment goals.

• IPO: Better if you want to invest in a company’s growth story from the beginning. New funds usually strengthen the company’s balance sheet.

• OFS: Better for buying shares at discounted prices in already listed companies. Ideal for investors who want a stake in an established company.

Both have their place in a diversified strategy. If you’re new to investing, reading the company’s financials, offer documents, and market trends is important be

Important Policies Related to Offer for Sale

• Only promoters or major shareholders holding more than 10% can use the OFS route.

• Companies must notify exchanges at least 2 days before the OFS.

• Minimum 10% reservation for retail investors.

• Non-promoters cannot use OFS unless approved by SEBI.

• The floor price must be declared in advance to ensure transparency.

Benefits of Offer for Sale

• Transparent Process: Regulated by SEBI; bids go through stock exchanges.

• Quick Liquidity: Promoters can sell shares swiftly.

• Discounted Shares: Often offered at attractive floor prices to attract investors.

• Easy Participation: Investors can bid easily through their trading account.

Limitations of Offer for Sale

• No fresh funds for company growth.

• No detailed prospectus like IPO, so less new information is available.

• Smaller retail participation if the stock is unpopular.

Real-Life Examples of OFS in India

• The Government of India regularly uses OFS to divest stakes in PSUs like ONGC, Coal India, and NMDC.

• Large listed companies like TCS and Wipro have also used OFS when promoters sold part of their stake.

FAQs on Offer for Sale (OFS)

Q1: What is Offer for Sale?

An Offer for Sale (OFS) is a method for promoters or major shareholders to sell existing shares in a listed company through the stock exchange.

Q2: What is the difference between IPO and OFS?

An IPO raises new capital with new shares, while an OFS sells existing shares without raising new money for the company.

Q3: Can retail investors participate in OFS?

Yes. 10% of the OFS size is reserved for retail investors.

Q4: Is OFS safe for investing?

OFS is safe if the company fundamentals are strong. Investors should study the floor price and market sentiment before bidding.

Q5: IPO vs OFS — which is better?

Both serve different purposes. IPOs are ideal for new growth opportunities, while OFS is good for getting shares in established companies at a discount.

Final Thoughts

An Offer for Sale is a simple and efficient way for promoters to reduce their stake while giving investors a chance to buy shares of reputable listed companies — often at a discounted price.

At Ultra, our mission is to help you explore all such investing avenues — whether it’s an IPO, OFS, or other equity and fixed-income options. Explore more smart ways to build your wealth