What is Offer for sale (OFS)
Definition: Offer for sale (OFS) is a simpler method of share sale through the exchange platform for listed companies. The mechanism was first introduced by India’s securities market regulator Sebi, in 2012, to make it easier for promoters of publicly-traded companies to cut their holdings and comply with the minimum public shareholding norms by June 2013. The method was largely adopted by listed companies, both state-run and private, to adhere to the Sebi order. Later, the government started using this route to divest its shareholding in public sector enterprises.
Description: Unlike a follow-on public offering (FPO), where companies can raise funds by issuing fresh shares or promoters can sell their existing stakes, or both, the OFS mechanism is used only when existing shares are put on the block. Only promoters or shareholders holding more than 10 per cent of the share capital in a company can come up with such an issue.
The mechanism is available to 200 top companies in terms of market capitalisation. In an OFS, a minimum of 25 per cent of the shares offered, are reserved for mutual funds (MFs) and insurance companies. At any point, no single bidder other than these two institutional categories is allocated more than 25 per cent of the size of the offering.
A minimum of 10 per cent of the offer size is reserved for retail investors. A seller can offer a discount to retail investors either on the bid price or on the final allotment price. The OFS window is open only for a single day. It is mandatory for the company to inform the stock exchanges two banking days prior to the OFS about its intention.
This has a key advantage over follow-on public offer (FPO), which stays open for three to 10 days, and takes considerable time, as it requires filing of draft papers and obtaining necessary approvals from Sebi.In OFS, the entire retail bid amount is backed by 100 per cent margins in the form of cash and cash-equivalent. The process is quick and any excess fund, due to non-allotment or partial allotment, is refunded to the trading member on the same day, after 6 pm.
Bids backed by 100 per cent margins are allowed to be modified anytime during the OFS hours. Nonetheless, those with zero per cent margin can only be modified upwards, for revision in price and quantity. No cancellation is permitted in such bids.
Bids below the floor price are rejected. The allocation remains subject to final price discovery. An FPO, on the other hand, defines a price band within which bids are placed.
The floor price is generally set at a discount to the prevailing price. But sometimes things go overboard. Take the example of MMTC. In June 2013, the OFS was offered at a steep discount of 72 per cent, thanks to low free-float shares (and hence low volumes) and premium valuations on lack of efficient price discovery mechanism. The stock crashed and now trades way below its pre-OFS price.
Know More: Union Budget Definition, Venture Capital Definition, Variance Analysis Definition, Revealed Preferences Definition, Common Area Maintenance Definition, Mutual Fund Definition, Load Definition, Trade Union Definition, El Classico Definition, Conditional Access System Definition
Description: Unlike a follow-on public offering (FPO), where companies can raise funds by issuing fresh shares or promoters can sell their existing stakes, or both, the OFS mechanism is used only when existing shares are put on the block. Only promoters or shareholders holding more than 10 per cent of the share capital in a company can come up with such an issue.
The mechanism is available to 200 top companies in terms of market capitalisation. In an OFS, a minimum of 25 per cent of the shares offered, are reserved for mutual funds (MFs) and insurance companies. At any point, no single bidder other than these two institutional categories is allocated more than 25 per cent of the size of the offering.
A minimum of 10 per cent of the offer size is reserved for retail investors. A seller can offer a discount to retail investors either on the bid price or on the final allotment price. The OFS window is open only for a single day. It is mandatory for the company to inform the stock exchanges two banking days prior to the OFS about its intention.
This has a key advantage over follow-on public offer (FPO), which stays open for three to 10 days, and takes considerable time, as it requires filing of draft papers and obtaining necessary approvals from Sebi.In OFS, the entire retail bid amount is backed by 100 per cent margins in the form of cash and cash-equivalent. The process is quick and any excess fund, due to non-allotment or partial allotment, is refunded to the trading member on the same day, after 6 pm.
Bids backed by 100 per cent margins are allowed to be modified anytime during the OFS hours. Nonetheless, those with zero per cent margin can only be modified upwards, for revision in price and quantity. No cancellation is permitted in such bids.
Bids below the floor price are rejected. The allocation remains subject to final price discovery. An FPO, on the other hand, defines a price band within which bids are placed.
The floor price is generally set at a discount to the prevailing price. But sometimes things go overboard. Take the example of MMTC. In June 2013, the OFS was offered at a steep discount of 72 per cent, thanks to low free-float shares (and hence low volumes) and premium valuations on lack of efficient price discovery mechanism. The stock crashed and now trades way below its pre-OFS price.
Know More: Union Budget Definition, Venture Capital Definition, Variance Analysis Definition, Revealed Preferences Definition, Common Area Maintenance Definition, Mutual Fund Definition, Load Definition, Trade Union Definition, El Classico Definition, Conditional Access System Definition
