What is Offer for Sale (OFS) ?
An Offer for Sale (OFS) is a simpler method that allows the promoters of a company to sell their shares to institutional and retail investors through exchanges and reduce their holdings transparently. Offer for sale is shorter and easier way to raise capital by the promoters. But only those shareholders who have more than 10% stake in a company are allowed to benefit from offer for sale.
Offer for sale have some special reservations as: - - Minimum 10% of offered shares have to be reserved for retail investors and
- Minimum 25% of the offered shares are reserved for insurance companies and mutual funds.
For how many days OFS bidding process is carried out?
The bidding process for an OFS issue is conducted over two days: -
Day 1:- Institutional and HNI orders whose bids are above ₹2 lakhs are collected on the first day.
Day 2:- The second day is reserved for retail bids whose bids are up to ₹2 lakhs from individuals and HUFs.
Those who applied in non-retail category on day one cannot reapply on the next day(T+1) in retail category.
What is cut-off price and floor price in an OFS?
FLOOR PRICE :- Floor prices is the price provided by the selling company as a minimum price at which an investor can place their order in an OFS.On day 1 of an OFS, all the non-retail investors have to apply at a price equal to or greater than floor price.No allocation to institutional investors will be made if the bid price is below the floor price on T Day. CUT-OFF PRICE: - A cut off price is determined for the 2nd day on the basis of the bids received on the 1st day and this becomes the floor price or minimum bid price for retail bids.If there is strong institutional demand then the cut off price for retail bids may be significantly higher than floor price for non-retail bids and if there is low demand then the cut off price for the retail bids may be same or low than the floor price of day 1.No allocation to retail investors will be made if the bid price is less than the cut off price on T + 1 day.
Does a client get discount if he buys through OFS?
In some OFS, retail investors may be offered a discount on the floor price of day 1 if the demand for an OFS is very low. Also, in OFS of public sector undertaking companies it can be possible that the shares are offered to retail investors at a discount on the floor price.
Can retail investors apply for an OFS below the cut-off price?
According to NSE and BSE Circulars, retail investors are only allowed to place bids at the cutoff price or higher in an OFS.
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