OFS (Offer for Sale)
An Offer for Sale (OFS) is a mechanism through which existing shareholders — including promoters and large investors — of a listed company can sell their shares to the public through the stock exchange platform, without the company itself raising any fresh capital.
The Offer for Sale mechanism was introduced by SEBI in 2012 to provide a transparent, efficient, and exchange-based route for existing large shareholders to reduce their holdings in listed companies. The defining characteristic of an OFS is that no new shares are created; the shares being sold are already in existence and are being transferred from the selling shareholder (the offeror) to new buyers. Consequently, the proceeds of an OFS go entirely to the selling shareholder and not to the company.
The OFS framework is available to shareholders of companies in the top 200 listed companies by market capitalisation, as measured periodically by the exchanges. The offeror must hold at least ten percent of the total paid-up capital of the company to be eligible to use the OFS route. SEBI introduced this threshold to ensure that the mechanism is used primarily by significant shareholders — typically promoters, private equity investors, or government entities in public sector undertakings — who are looking to monetise or reduce their stake in an orderly manner.
The mechanics of an OFS are straightforward. The selling shareholder announces the offer at least one day before the OFS opens, disclosing the number of shares being offered, the floor price, and the allocation mechanism. The OFS opens on the stock exchange for a single trading day. Institutional investors (including non-retail investors) can place their bids on the first day, while retail investors can bid on the second day if a separate retail allocation has been specified by the offeror. The floor price serves as the minimum price at which the offeror is willing to sell; bids below the floor price are rejected.
Allocation in an OFS typically follows a price-priority (book-building) approach, where bidders who bid at higher prices receive priority in allotment. SEBI requires that a minimum of twenty-five percent of the shares offered must be reserved for retail investors (non-institutional buyers), unless the offeror specifies otherwise. Retail investors also benefit from a discounted price — the offeror may offer shares to retail investors at a discount of up to five percent relative to the price at which institutional bids are cleared.
The OFS mechanism has been extensively used in India by the Government of India (through the Department of Investment and Public Asset Management, DIPAM) to divest its holdings in public sector enterprises and achieve its divestment targets. The transparency of the exchange-based process, the speed of execution (typically completed within two trading days), and the relatively low transaction costs compared to a fully structured secondary public offer make the OFS an attractive route for large shareholders seeking an orderly exit.